In its latest quarterly filing, The Goldman Sachs Group, Inc. GS has raised estimates for potential legal losses by 55% to $5.9 billion. According to sources, the increase is triggered by a probable settlement with authorities regarding risky mortgage-backed securities.
Notably, Goldman disclosed that the U.S. Attorney for the Eastern District of California has found it guilty of violating federal laws that govern the underwriting, sale and securitization of residential mortgage-backed securities. This came as part of an investigation by Residential Mortgage-Backed Securities Working Group of the U.S. Financial Fraud Enforcement Task Force (RMBS Working Group).
In this regard, the company noted that, “potential resolution of this matter and were it to be resolved, of which there can be no assurance, such resolution may result in significant penalties and other costs”.
Goldman also noted that the estimated amount for the possible legal loss does not include potential claims stemming from ongoing investigations including mortgage bond investigations, litigation with Libyan Investment Authority and investigations in risk management and controls, trading activities and communications with respect to the establishment of benchmark rates including currency and ISDAFIX benchmark rates.
Goldman had earlier raised its estimates by 27% to $3.8 billion in May 2015. Moreover, it had put aside $1.45 billion in second quarter for mortgage-related litigation expenses and regulatory matters.
Notably, the company is likely to pay $270 million toward settlement of related issues. Many other big banks, including Bank of America Corporation BAC, Citigroup Inc. C and JPMorgan Chase & Co. JPM have been penalized for faulty mortgage-related practices.
Goldman currently carries a Zacks Rank #2 (Buy).
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