With literally every other major bank having already taken its lumps for the role it played in the mortgage crisis, it was no secret that Goldman Sachs would eventually have to settle on a mea culpa number for whatever might or might not happened in the lead up to one of the worst economic disasters in the history of the United States.
And while we got an inkling back in January about just how much Goldman would have to pay out to put this whole headache behind it and ensure that there would be no further action taken, we got a whole of info today regarding the bank's $5.1 billion settlement with Department of Justice.
As is Goldman's wont, it appears that Lloyd and Co. struck a pretty great little deal...
The final bill for Goldman is less than the settlements of mortgage giants like JPMorgan Chase, which paid $13.3 billion, and Bank of America, which paid $16.6 billion, but more than the $3.2 billion paid by Goldman’s closest competitor, Morgan Stanley. A number of foreign banks are still under investigation.
As in previous settlements, the authorities did not name any particular bad actors at Goldman. The working group has been criticized for not punishing individual bankers.
Aside from the fair assumption that no one really enjoys beating Morgan Stanley anymore, Lloyd must be tickled pink that he paid less than a third of what Brian Moynihan had to pony up, even if you factor in all the legacy Countrywide nightmares. And when consider that Goldman got $10 billion in TARP funds, the $5.1 billion is almost victorious.
But the feds did get to have a little fun turning the screws, releasing some documents that indicate at least a handful of GoldMen acted pretty callously while assembling the mortgage powder keg.
Like other banks, Goldman purchased loans that had been issued by subprime mortgage specialists like Countrywide Financial. Goldman then packaged these loans into bonds that were able to get the highest rating from credit rating agencies. The loans were sold to investors, who sustained losses when the loans went sour.
Over the course of 2006, Goldman employees took note of the decreasing quality of loans that it was buying, according to a statement of fact released along with the settlement. When an outside analyst wrote a positive report about Countrywide in April 2006, the head of due diligence at Goldman wrote, in an email: “If they only knew.
Oh, you scamps.
According to the DOJ, Goldman's penalty money will be allocated thusly:
The resolution announced today requires Goldman to pay $2.385 billion in a civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) and also requires the bank to provide $1.8 billion in other relief, including relief to underwater homeowners, distressed borrowers and affected communities, in the form of loan forgiveness and financing for affordable housing. Goldman will also pay $875 million to resolve claims by other federal entities and state claims. Investors, including federally-insured financial institutions, suffered billions of dollars in losses from investing in RMBS issued and underwritten by Goldman between 2005 and 2007.
Somewhere on West Street, thousands of palms are being rubbed together in a symbolic cleansing while Gary Cohn leans back in his chair and says "So that happened..."