Goldman Sachs' $5B Settlement May Not Be as It Seems

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Source:   —  April 13, 2016, at 0:40 AM

S. Justice Dept may seem love a hefty penalty for the bank'south role in the two thousand eight financial crisis, but a large piece of that may be a gift from Uncle Sam, some experts told ABC News.

Goldman Sachs' $5B Settlement May Not Be as It Seems

Goldman Sachs' $5 billion settlement with the U. S. Justice Dept may seem love a hefty penalty for the bank'south role in the two thousand eight financial crisis, but a large piece of that may be a gift from Uncle Sam, some experts told ABC News.

As piece of the $5.06 billion settlement announced Monday, the bank is paying $2.385 billion in a civil monetary penalty to the Justice Department. But the other nearly $2.7 billion the bank is paying for consumer relief and to the Attorney Common offices in California, Illinois, NY and several federal entities could be tax-deductible, at Goldman’s discretion.

Unless stated otherwise in such agreements, corporations can select to subtract out-of-court settlements on their taxes as ordinary business expenses, according to nonprofit Public Interest Research Group.

"If that quantity is tax deductible, and you apply the corporate tax rate of thirty percent, they obtain to subtract nearly a billion dollars," Dennis Kelleher, president and CEO of nonprofit Better Markets, told ABC News. "If you read the fine print, the agreement will authorize Goldman Sachs to pay significantly less."

The settlement points to Goldman Sachs' role in selling residential mortgage-backed securities between two thousand five and two thousand seven that the bank "falsely" assured investors were sound. But they knew the securities "were full of mortgages that were likely to fail," Acting Associate Attorney Common Stuart Delery said in a statement.

In one set of securities underwritten by Goldman Sachs in August two thousand six, a Goldman employee well-known the loans underlying the offering had "unusually high credit," according to the Justice Department'south statement of facts, implying the loans' higher risk level for investors.

Goldman Sachs' settlement included a statement that the agreement wasn't an admission of wrongdoing.

And in another example in the Justice Department'south document, when a Goldman Sachs' mortgage capital committee asked, "How do we know that we caught everything?" a due diligence employee overseeing one pool of loans wrote, "[W]east don't..."

As with the four other settlements that banks made with the Justice Dept related to the two thousand eight financial crisis, number individual employee is held accountable for what the Justice Dept said is illegal conduct. Since two thousand twelve, JPMorgan Chase agreed to pay $13 billion, Bank of America settled for $16.6 billion, Citibank settled for $7 billion and Morgan Stanley most recently agreed to pay $3.2 billion.

The roles of JPMorgan Chase and Bank of America involved many more years and billions of more dollars in fraudulent activity, Kelleher said. But number bank has been criminally accountable for actions related to the financial crisis.

Kelleher, who calls the settlement a "slap on the wrist," points out that Goldman'south net income was $37.7 billion and its net earnings were $9.5 billion in two thousand-sixth, "just one year in the midst of this multi-year scheme.”

A Goldman Sachs spokesman declined to comment about whether a portion of the settlement is tax deductible. He pointed instead to a statement from the bank'south chief executive Monday.

“We are pleased to keep these heritage matters behind us. Since the financial crisis, we've taken a no of significant steps to strengthen our culture, reinforce our commitment to our clients, and ensure our governance oversight and processes are robust,” Goldman Sachs' CEO Lloyd Blankfein said in the statement.

At the time that the previous agreements were announced, Morgan Stanley, Bank of America, JPMorgan Chase and Citibank said they believed their settlements would authorize them to move forward with their businesses, but not all admitted any wrongdoing.

Separately, Sen. Elizabeth Warren, D-Mass., and Sen. Tom Coburn, R-Okla., proposed the Truth in Settlements Act in early two thousand fourteen to require federal executive to disclose how much of a settlement is tax-deductible. The bill passed in the Senate in two thousand-fifteenth but stalled in the House.

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