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US government RMBS settlements finally nearing an end, $56B later


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US government RMBS settlements finally nearing an end, $56B later

And then there was one.

A full decade after the financial crisis, it appears that the U.S. Justice Department is finally nearing the end of its probes into the sales of residential mortgage backed securities, or RMBS. The structured finance products played a central role in the 2008 financial crisis, and the Justice Department has taken an aggressive approach in pursuing civil fines, though criminal prosecutions were scant.

The department has levied billions of dollars in fines against the most prolific packagers and sellers of RMBS, focusing its efforts on 16 banks that faced litigation or paid settlements to the Federal Housing Finance Agency, the agency that oversees Fannie Mae and Freddie Mac.

Over the last four months, four of those 16 banks have settled with the DOJ, leaving just one: Nomura Holdings Inc., which has been fighting the FHFA in court and has yet to settle with the Justice Department. A spokesperson for Nomura's U.S. operations declined to comment. The FHFA won a settlement in court, but Nomura has petitioned the Supreme Court to review the case. The Justice Department investigation is ongoing, and Nomura's U.S. subsidiaries are cooperating, according to the company's latest regulatory filing.

The other 15 banks have settled with both the FHFA and the Justice Department for a grand total of $56.2 billion. That sum includes only penalties and fines, not customer remediation measures such as loan modifications or pledges to purchase certain securities.

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Components such as consumer relief led to drastically different headline figures for certain banks. For example, when JPMorgan Chase & Co. settled with Justice in 2013, the announcement trumpeted a $13 billion payment. However, that included the FHFA settlement, state settlements and $4 billion in consumer relief. The penalty paid to the Justice Department was $2 billion. By contrast, when Wells Fargo & Co. settled with the department five years later, the Aug. 1 announcement's headline figure was drastically smaller even though the $2 billion payout represented essentially the same civil penalty.

A week after Wells Fargo's settlement, HSBC Holdings PLC disclosed that it had reached a deal with the Justice Department. Other recent deals to settle RMBS issues include UBS Group AG in July and Royal Bank of Scotland Group PLC, finalized in August.

With such different paths to resolution, it is difficult to tell which bank best handled the RMBS investigations. Further, the cases brought by the Justice Department carried such different allegations and supporting facts that value judgments are near impossible, said Joseph Cioffi, a partner with Davis & Gilbert LLP, in an email.

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