By Justin Baer
Goldman Sachs Group Inc. said federal litigators had informed
the firm in December that it might face a civil lawsuit stemming
from the government's probe into the sale of mortgage bonds heading
into the financial crisis.
The U.S. attorney's office in the Eastern District of California
wrote to Goldman that month noting the government had
"preliminarily concluded" that the firm had violated federal law in
connection with underwriting, securitizing and selling mortgage
bonds, Goldman said Monday in a regulatory filing.
The California litigators are part of a U.S. working group
tasked with probing the actions of banks in selling mortgage-backed
securities that plummeted in value during the crisis. The Justice
Department's investigations have already wrung multibillion-dollar
settlements from several large U.S. banks, including J.P. Morgan
Chase & Co. and Citigroup Inc.
The case against Goldman is part of a second set of
investigations currently under way at the Justice Department.
Penalties in those cases are expected to be less than the $7
billion paid by Citigroup last year, but could still be
substantial. Settlement talks between Justice Department officials
in Washington and Morgan Stanley are in early stages, and Monday's
filing indicates that Goldman could be next in line.
The U.S. attorney's office told Goldman it may file a civil
action related to the case, and asked the firm to respond to the
allegations.
Goldman also said in its filing that it had raised the top end
on its range of "reasonably possible" legal losses to about $3
billion. The estimate, which tracks potential losses above what was
already set aside in reserves, stood at about $2.5 billion in
November.
The forecast for "reasonably possible" losses doesn't include
"any future claims from the continuing investigations" related to
the federal government mortgage-bond probe.
Goldman added a pair of new details to the list of regulatory
investigations and reviews it faces, introducing "the firm's system
of risk management and controls" as another area that had drawn
scrutiny from regulators.
The firm also noted that ongoing probes into trading activities
around the interest-rate derivatives involved the ISDAFix, a global
benchmark for swap rates and spreads for rate swap
transactions.
Goldman said it was one of the firms that face class-action
lawsuits alleging they violated antitrust laws and the Commodity
Exchange Act by manipulating the ISDAFix.
Goldman set aside $754 million for legal and regulatory
proceedings last year, compared with the $962 million in net
provisions the firm took in 2013. The firm recorded $161 million in
provisions during the fourth quarter.
Goldman said it had redeemed about $2.97 billion in hedge-fund
investments since March 2012, as the firm moved to comply with the
so-called Volcker rule that limits how big banks put their own
money at risk. Goldman sold $762 million in those investments in
2014.
Goldman also said Monday that its traders posted net losses on
28 days last year. In the same period, the firm had more than $100
million in net trading revenue on 28 days.
Goldman's traders had nine losing days during the fourth
quarter, based on an analysis of the firm's filings. On three days,
the firm's net trading revenue exceeded $100 million.
Andrew Grossman contributed to this article.
Write to Justin Baer at justin.baer@wsj.com
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