Goldman Sachs fined $5.1 billion over mortgage-backed securities fraud

Goldman Sachs said it agreed to a $5.1 billion civil settlement to resolve federal and state probes into its handling of mortgage-backed securities before the 2008 financial crisis.

The authorities investigated the bank’s securitization, underwriting and sale of residential mortgage-backed securities from 2005 to 2007.

“We are pleased to have reached an agreement in principle to resolve these matters,” Goldman CEO Lloyd C. Blankfein said.

The New York-based bank would pay a $2.39 billion civil monetary penalty, make $875 million in cash payments and provide $1.8 billion in consumer relief, such as mortgage principal forgiveness for underwater homeowners and distressed borrowers, and support for debt restructuring.

The bank, which is scheduled to report fourth-quarter earnings on Wednesday, said that the settlement would reduce earnings in that period by approximately $1.5 billion on an after-tax basis. This will allow 2016 earnings to be free from the penalties.

Goldman had already provisioned for the expenses, having set aside $2.41 billion for legal expenses in 2015.

The settlement would be the latest multibillion-dollar deal resulting from a joint state-federal task force trying to hold banks accountable for allegedly misleading investors when selling mortgage-backed securities.

Previous deals, however, were much larger. Bank of America paid $16.6 billion in a similar settlement with the task force in 2014, and JPMorgan Chase handed over $13 billion in 2013. Goldman had previously paid $3 billion to the Federal Housing Finance Agency. Wall Street banks have paid a total of more than $40 billion in settlements to resolve claims connected with faulty securities related to the financial crisis.

The final terms of the Goldman deal, however, are still being negotiated.

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