Goldman Sachs Agrees $5bn Mis-selling Penalty

The US investment bank Goldman Sachs (NYSE: GS-PB - news) has agreed to pay $5bn (£3.5bn) to settle claims it misled mortgage bond-holders ahead of the financial crisis.

Goldman, like other Wall Street rivals, has been under investigation for allegedly misleading investors on the safety of the securities they created by bundling and selling mortgages which later turned sour.

The bank said late on Thursday it would take a $1.5bn hit to its fourth quarter earnings as a result of the deal - made with the federal and state task force set up by President Obama.

It (Other OTC: ITGL - news) had made an earlier provision of $2.5bn to account for the cost of any settlement.

Goldman said the settlement comprised a $2.4 bn civil penalty with the bulk of the remainder earmarked for relief for homeowners whose mortgages exceed the value of their property.

The regulators, which include the US Department of Justice, were yet to comment on the outcome as the agreement was yet to be formally signed off.

The bank's chairman and chief executive, Lloyd Blankfein, only said: "We are pleased to have reached an agreement in principle to resolve these matters."

The probe centres on mortgages sold to people who could not afford them and then repackaged for investors without an adequate explanation of how risky they were.

Goldman has been one of the last banks to settle with regulators for its role.

Bank of America (Swiss: BAC.SW - news) individually has paid out tens of billions of dollars in fines while JP Morgan settled for $13bn in 2013.