Federal prosecutors in the US are suing Barclays (BARC) and two of its former executives over the issuance of allegedly fraudulent mortgage-backed securities as the US housing market hyperventilated in the period 2005-07.
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The US Department of Justice has accused the bank of deceiving investors about the quality of loans linked to mortgage-backed securities worth around $31bn (£25.3bn). According to the lawsuit, more than half the underlying loans pooled into 36 separate deals defaulted.
Barclays has set aside $3.1bn to cover legal costs and penalties, but has not made a specific provision for the mortgage issue, though it’s thought that any settlement comparable in scale to those just agreed between US authorities and European lenders Credit Suisse ($5.3bn) and Deutsche Bank ($7.2bn) would have negative implications for the bank's core capital ratio.
