WEBVTT - Barclays in Talks Over Toxic Mortgages (Audio)

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<v Speaker 1>Barkley's in the US Justice Department are engaged in a

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<v Speaker 1>legal battle over the suspected fraudulent sale of mortgage securities

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<v Speaker 1>a decade ago. But is there a settlement in the offing?

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<v Speaker 1>In the offing, they've reopened negotiations about an out of

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<v Speaker 1>court settlement at the request of the London Bank, According

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<v Speaker 1>to people with knowledge of the situation, joining us as

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<v Speaker 1>Professor Robert Hocket of Cornell University Law School, Bob, let's

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<v Speaker 1>begin with the lawsuit itself tell us about it. Yeah,

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<v Speaker 1>so this is in a certain sense kind of familiar,

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<v Speaker 1>at least as far as the content of it goes right.

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<v Speaker 1>The claim is that Barkley's quite cavalierly sold defective mortgage

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<v Speaker 1>backed securities to its various customers, and that it's financed, indeed,

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<v Speaker 1>the extending of mortgage loans to people who are very

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<v Speaker 1>bad risks. So it's essentially a kind of classic sort

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<v Speaker 1>of securities fraud type claim or wire fraud type claim.

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<v Speaker 1>Um quite a great deal like many other such cases

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<v Speaker 1>or suits that we've heard about in the year's past.

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<v Speaker 1>What was sort of different about this one was essentially

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<v Speaker 1>the sort of tardiness with which it was filed. This

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<v Speaker 1>wasn't filed until last December, and in the essentially the

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<v Speaker 1>waning days of the Obama Justice Department, well bob other

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<v Speaker 1>lenders negotiated settlements worth tens of billions of dollars in

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<v Speaker 1>penalties overall, rather than risk litigation. Deutsche Bank paid seven

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<v Speaker 1>point two billion dollars, but people familiar with the situation

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<v Speaker 1>say Barkley's was willing to pay no more than two

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<v Speaker 1>billion to settle the matter, while the Justice Department reportedly

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<v Speaker 1>demanded five billion. What are some of the possible reasons

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<v Speaker 1>that Barkley's preferred having the government suet well that there

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<v Speaker 1>seemed to be two possibilities at least that come to

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<v Speaker 1>my mind. The first is that Barkley's actually believed what

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<v Speaker 1>it said at the time, which was that, well, look,

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<v Speaker 1>we didn't do nearly as much of this kind of

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<v Speaker 1>thing as the other banks did, and we certainly didn't

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<v Speaker 1>do anything nearly as much as the American banks did. Uh,

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<v Speaker 1>and so the settle, the kind of settlement that would

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<v Speaker 1>be reasonable for us, should be much lower than were

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<v Speaker 1>the settlements for other American banks, especially, but also other

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<v Speaker 1>European banks, including Deutsche Bank. UM. So that was that

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<v Speaker 1>was one I think. I mean, if they believed that

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<v Speaker 1>when they said it, then that might be one reason

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<v Speaker 1>they might have been standing on principle. A second possibility

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<v Speaker 1>is that because the suit in their case was sort

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<v Speaker 1>of looming fairly late in the game, and by which

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<v Speaker 1>I mean late in the in the time of the

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<v Speaker 1>Obama administration, they might very well have been guessing or

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<v Speaker 1>betting that they could actually do better with a Trump

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<v Speaker 1>to Justice Department in any event, because that department doesn't

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<v Speaker 1>seem to have been quite as zealous about pursuing securities

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<v Speaker 1>broad type matters, although it must be said that the

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<v Speaker 1>Obama o j wasn't particularly zealous about this either. Barclay's

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<v Speaker 1>asked a federal judge in Brooklyn to dismiss the case

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<v Speaker 1>this month now, in April, the judge skeptically urged Barkley's

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<v Speaker 1>to settle rather than request the case dismissal. So is

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<v Speaker 1>that a clear ignal or fairly clear signal that they're

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<v Speaker 1>unlikely to win dismissal of the government suit? Yeah, I

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<v Speaker 1>think that's a very that's that's not a particularly ambiguous

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<v Speaker 1>signals that way. And there was one other signal that

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<v Speaker 1>came out as well, and that was that the Trump

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<v Speaker 1>p o J contested right, that particular request, right, that

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<v Speaker 1>particular motion to dismiss was contested by the Trump d

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<v Speaker 1>o J. And that itself might also have come as

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<v Speaker 1>something of a surprise to Bartley's because again, you know,

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<v Speaker 1>one leading theory I suppose as to what Barkley's is

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<v Speaker 1>thinking is that or at least what they were thinking,

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<v Speaker 1>is that they were probably thinking that they would actually

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<v Speaker 1>again fair better under a Trump d o J. And

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<v Speaker 1>that doesn't seem to be happening for them, So they

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<v Speaker 1>seem to be reassessing partly on that basis. And Bob,

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<v Speaker 1>the bank and its chief executive officer are also under

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<v Speaker 1>scrutiny in the UK, the Bank by the Serious Fraud

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<v Speaker 1>Office and Justice Daily by the Financial Conduct Authority. What's

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<v Speaker 1>happening there, Well, that's still in aggress. Uh. And and

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<v Speaker 1>you might recall we talked a little while back about

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<v Speaker 1>other charges has been brought against Barkley's back at home

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<v Speaker 1>by those UK offices. So Barkley's has been implicated. And

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<v Speaker 1>again I have to stress that's not to say that

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<v Speaker 1>they've been found guilty, but but uh, they have been

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<v Speaker 1>implicated in a number of scandals and in recent years. Uh,

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<v Speaker 1>and so there's still you know, under active investigation in

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<v Speaker 1>the UK, partly for mortgage fraud type matters of the

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<v Speaker 1>kind that are the subject of the current d o

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<v Speaker 1>J negotiations, but also for other ones as well. So

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<v Speaker 1>have those lawsuits in the different situations Barkley that is

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<v Speaker 1>facing contributed to its decline in stock this year and

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<v Speaker 1>might that be moving Barkley's also towards US settlement. Well, yeah,

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<v Speaker 1>that's a great, great point and I think that's has

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<v Speaker 1>been another very important piece of the story here. Right.

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<v Speaker 1>So as you know, um, the stock I guess Barkley

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<v Speaker 1>Stows declined something like eight percent over the past year UM,

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<v Speaker 1>in particular after yesterday right when they reported a significant

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<v Speaker 1>decline in their trading revenue. I think so the fact

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<v Speaker 1>that the firm is not doing so well in the

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<v Speaker 1>market at the moment, and the fact that uncertainty looming

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<v Speaker 1>over it when it comes to litigation of both in

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<v Speaker 1>the UK and here in the US on the part

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<v Speaker 1>of actual law enforcement authorities, probably isn't a welcome situation

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<v Speaker 1>for the to be in. And I'm sure at this

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<v Speaker 1>point they'd be really happy to be kind of get

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<v Speaker 1>it behind them as quickly as they can, just to

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<v Speaker 1>get rid of the uncertainty. Always great to have you

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<v Speaker 1>on the show, Bob, I appreciate your candor. That's Robert Hockett,

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<v Speaker 1>professor at Cornell University Law School, coming up on Bloomberg Law.

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<v Speaker 1>The tech giants now occupy the top five spots in

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<v Speaker 1>the ranks of the largest US companies by market capitalization,

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<v Speaker 1>but for the first time in decades, lawmakers are putting

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<v Speaker 1>up some barriers.