Speaker 1: Barkley's in the US Justice Department are engaged in a
Speaker 1: legal battle over the suspected fraudulent sale of mortgage securities
Speaker 1: a decade ago. But is there a settlement in the offing?
Speaker 1: In the offing, they've reopened negotiations about an out of
Speaker 1: court settlement at the request of the London Bank, According
Speaker 1: to people with knowledge of the situation, joining us as
Speaker 1: Professor Robert Hocket of Cornell University Law School, Bob, let's
Speaker 1: begin with the lawsuit itself tell us about it. Yeah,
Speaker 1: so this is in a certain sense kind of familiar,
Speaker 1: at least as far as the content of it goes right.
Speaker 1: The claim is that Barkley's quite cavalierly sold defective mortgage
Speaker 1: backed securities to its various customers, and that it's financed, indeed,
Speaker 1: the extending of mortgage loans to people who are very
Speaker 1: bad risks. So it's essentially a kind of classic sort
Speaker 1: of securities fraud type claim or wire fraud type claim.
Speaker 1: Um quite a great deal like many other such cases
Speaker 1: or suits that we've heard about in the year's past.
Speaker 1: What was sort of different about this one was essentially
Speaker 1: the sort of tardiness with which it was filed. This
Speaker 1: wasn't filed until last December, and in the essentially the
Speaker 1: waning days of the Obama Justice Department, well bob other
Speaker 1: lenders negotiated settlements worth tens of billions of dollars in
Speaker 1: penalties overall, rather than risk litigation. Deutsche Bank paid seven
Speaker 1: point two billion dollars, but people familiar with the situation
Speaker 1: say Barkley's was willing to pay no more than two
Speaker 1: billion to settle the matter, while the Justice Department reportedly
Speaker 1: demanded five billion. What are some of the possible reasons
Speaker 1: that Barkley's preferred having the government suet well that there
Speaker 1: seemed to be two possibilities at least that come to
Speaker 1: my mind. The first is that Barkley's actually believed what
Speaker 1: it said at the time, which was that, well, look,
Speaker 1: we didn't do nearly as much of this kind of
Speaker 1: thing as the other banks did, and we certainly didn't
Speaker 1: do anything nearly as much as the American banks did. Uh,
Speaker 1: and so the settle, the kind of settlement that would
Speaker 1: be reasonable for us, should be much lower than were
Speaker 1: the settlements for other American banks, especially, but also other
Speaker 1: European banks, including Deutsche Bank. UM. So that was that
Speaker 1: was one I think. I mean, if they believed that
Speaker 1: when they said it, then that might be one reason
Speaker 1: they might have been standing on principle. A second possibility
Speaker 1: is that because the suit in their case was sort
Speaker 1: of looming fairly late in the game, and by which
Speaker 1: I mean late in the in the time of the
Speaker 1: Obama administration, they might very well have been guessing or
Speaker 1: betting that they could actually do better with a Trump
Speaker 1: to Justice Department in any event, because that department doesn't
Speaker 1: seem to have been quite as zealous about pursuing securities
Speaker 1: broad type matters, although it must be said that the
Speaker 1: Obama o j wasn't particularly zealous about this either. Barclay's
Speaker 1: asked a federal judge in Brooklyn to dismiss the case
Speaker 1: this month now, in April, the judge skeptically urged Barkley's
Speaker 1: to settle rather than request the case dismissal. So is
Speaker 1: that a clear ignal or fairly clear signal that they're
Speaker 1: unlikely to win dismissal of the government suit? Yeah, I
Speaker 1: think that's a very that's that's not a particularly ambiguous
Speaker 1: signals that way. And there was one other signal that
Speaker 1: came out as well, and that was that the Trump
Speaker 1: p o J contested right, that particular request, right, that
Speaker 1: particular motion to dismiss was contested by the Trump d
Speaker 1: o J. And that itself might also have come as
Speaker 1: something of a surprise to Bartley's because again, you know,
Speaker 1: one leading theory I suppose as to what Barkley's is
Speaker 1: thinking is that or at least what they were thinking,
Speaker 1: is that they were probably thinking that they would actually
Speaker 1: again fair better under a Trump d o J. And
Speaker 1: that doesn't seem to be happening for them, So they
Speaker 1: seem to be reassessing partly on that basis. And Bob,
Speaker 1: the bank and its chief executive officer are also under
Speaker 1: scrutiny in the UK, the Bank by the Serious Fraud
Speaker 1: Office and Justice Daily by the Financial Conduct Authority. What's
Speaker 1: happening there, Well, that's still in aggress. Uh. And and
Speaker 1: you might recall we talked a little while back about
Speaker 1: other charges has been brought against Barkley's back at home
Speaker 1: by those UK offices. So Barkley's has been implicated. And
Speaker 1: again I have to stress that's not to say that
Speaker 1: they've been found guilty, but but uh, they have been
Speaker 1: implicated in a number of scandals and in recent years. Uh,
Speaker 1: and so there's still you know, under active investigation in
Speaker 1: the UK, partly for mortgage fraud type matters of the
Speaker 1: kind that are the subject of the current d o
Speaker 1: J negotiations, but also for other ones as well. So
Speaker 1: have those lawsuits in the different situations Barkley that is
Speaker 1: facing contributed to its decline in stock this year and
Speaker 1: might that be moving Barkley's also towards US settlement. Well, yeah,
Speaker 1: that's a great, great point and I think that's has
Speaker 1: been another very important piece of the story here. Right.
Speaker 1: So as you know, um, the stock I guess Barkley
Speaker 1: Stows declined something like eight percent over the past year UM,
Speaker 1: in particular after yesterday right when they reported a significant
Speaker 1: decline in their trading revenue. I think so the fact
Speaker 1: that the firm is not doing so well in the
Speaker 1: market at the moment, and the fact that uncertainty looming
Speaker 1: over it when it comes to litigation of both in
Speaker 1: the UK and here in the US on the part
Speaker 1: of actual law enforcement authorities, probably isn't a welcome situation
Speaker 1: for the to be in. And I'm sure at this
Speaker 1: point they'd be really happy to be kind of get
Speaker 1: it behind them as quickly as they can, just to
Speaker 1: get rid of the uncertainty. Always great to have you
Speaker 1: on the show, Bob, I appreciate your candor. That's Robert Hockett,
Speaker 1: professor at Cornell University Law School, coming up on Bloomberg Law.
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