Goldman's $272M RMBS Settlement Receives Judge Approval

The Goldman Sachs Group, Inc.’s (NYSE:GS) $272 million mortgage settlement received approval of the U.S. District Judge, Loretta Preska in Manhattan on Monday. The settlement puts an end to a prolonged legal battle stemming from the financial crisis.

According to the released court order, the settlement is “in all respects, fair, reasonable and adequate and in the best interest of the settlement class members.” Goldman, however, did not admit any wrongdoing.

Notably, last year Goldman agreed to settle the concerned lawsuit that accused it of misrepresenting facts pertaining to nearly $6 billion of residential mortgage-backed securities (“RMBS”).The class action lawsuit was filed by pension funds led by NECA-IBEW Health & Welfare Fund of Illinois. It alleged that Goldman gave false statements and/or omitted material facts in the registration statement representing the mortgage offerings.

The lawsuit accused the company of providing misleading information regarding the underwriting standards, appraisal of properties and credit quality of the underlying mortgage loans. Also, the plaintiffs stated that following the 2008 financial crisis, the prices of RMBS plunged and their credit ratings collapsed to “triple-C” from “triple-A.”

Post crisis, the regulators have ramped up their efforts to penalize financial entities for wrongdoings and misrepresentation of facts while selling their investment products. Several major banking giants including Bank of America Corp. (NYSE:C) , Citigroup Inc. (NYSE:C) and JPMorgan Chase & Co. (NYSE:JPM) , have settled numerous mortgage-related litigations. We believe all these settlements indicate the banks’ efforts to get past their legal headwinds and concentrate on improving operational efficiency.

Goldman currently carries a Zacks Rank #5 (Sell).


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