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New York - Goldman Sachs says it has reached a tentative $5.1bn deal with the US and state authorities to settle allegations related to fraudulent marketing of mortgage bonds before the financial crisis.
The Wall Street investment bank said that it would pay a civil penalty of $2.4bn to settle with the authorities, as well as payments of $875m and $1.8bn in consumer relief.
Goldman said the "in principle" agreement is with the Department of Justice's financial fraud enforcement task force which has been investigating fraud by banks in marketing residential mortgage-backed securities (RMBS), the financial assets that were at the heart of the 2007-2008 meltdown of the US financial sector.
Will reduce earnings
The settlement related to Goldman providing security, underwriting and sale of RMBS from 2005 to 2007, it said.
Goldman said the agreement will resolve civil claims on the issue with the Justice Department, the National Credit Union Administration - which represents some financial institutions that failed after their RMBS investments soured - and Federal Home Loan Banks in Chicago and Seattle. Also in the settlement are the state attorneys general of Illinois and New York.
"We're pleased to have reached an agreement in principle to resolve these matters," said Goldman chairperson and chief executive Lloyd Blankfein in a statement.
Goldman said the settlement will reduce after-tax earnings for the fourth quarter of 2015 by about $1.5bn.
Highly risky
Goldman is just the latest in a series of major banks fined billions of dollars for selling RMBS and other housing market-linked securities as safe investments when the underlying assets were low quality and highly risky.
Investors in them, including a number of banks and credit unions, suffered heavy losses, with many forced to close, when the value of the securities plummeted with the collapse of the housing market.
Goldman in 2014 agreed to pay $3.2bn to resolve claims it misled the huge government-backed housing finance companies Fannie Mae and Freddie Mac on mortgage-linked securities it sold them.
