Citigroup Inc (NYSE:C), Goldman Sachs Group Inc (NYSE:GS) and UBS Group AG (USA) (NYSE:UBS) will pay $235 million in mortgage-settlement. The banks faced accusations of promoting toxic mortgage securities sold to investors immediately before the financial meltdown. The latest settlement relates to the securities sold by former Residential Capital LLC.
Citigroup Inc (NYSE:C) and its peers participated in underwriting the mortgage securities, but had been accused of concealing the risks of the securities, leading investors to huge losses. Although the banks have agreed to settle the litigation, they have denied wrongdoing. The settlement is expected to save them further legal costs and other burdens related to the issue.
According to the investors who brought up the case against the banks, Citigroup Inc (NYSE:C), Goldman and UBS violated federal securities law. The investors accused the banks of issuing false and misleading registration statements pertaining to the mortgage security offerings.
Highest mortgage recovery
The latest settlement requires court approval. However, it is also currently unclear what each bank will pay towards the $235 million settlement deal. According to the plaintiff lawyers, the settlement represents 3.05% of the value of the securities at the time of issuance. That puts the settlement among the highest class-action recovery in mortgage-backed securities.
According to court papers, lawyer for the lead plaintiff in the mortgage case intends to recover expenses and legal fees. Cohen Milstein Sellers & Toll plans to recover much as $69.5 million in legal fees and $5.5 million in expenses.
$100 million accord
Still, the latest settlement is separate from $100 million settlement accord with the entities of ResCap and individuals. The accord was reached in 2013 and has been approved by court.
Residential Capital, which is at the center of the toxic mortgage securities, has changed hands a number of times. The institution was once part of GMAC and then later became part of Ally Financials Inc (NYSE:ALLY), which place ResCap into bankruptcy in 2012 amid rising mortgage liabilities.
Neither Citigroup Inc (NYSE:C) nor the other banks has commented on the latest Residential Capital settlement.