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Fitch: Goldman Sachs' FHFA Settlement Neutral for Credit Ratings

NEW YORK--(BUSINESS WIRE)--The mortgage settlement between Goldman Sachs and the Federal Housing Finance Agency (FHFA) conforms to the recent pattern of lawsuit settlements made by large global banks, and Fitch Ratings says the payment will have no impact on Goldman Sachs' ratings ('A'/'F1' with a Stable Outlook).

As part of the settlement, Goldman Sachs agreed to pay $3.15 billion to repurchase mortgage-backed securities from Fannie Mae and Freddie Mac, which will make them whole on their investments. The economic value of the settlement is estimated at $1.2 billion, which reflects the difference between the $3.15 billion cash payment and the GSEs' net carrying value of the securities repurchased, which Goldman will be able to sell at a later date.

The approximate value of the settlement represents between 10%-11% of the original face value of affected mortgage-backed securities, which is roughly in line with other institutions that have recently settled. Goldman Sachs has already largely reserved for this payment. The FHFA settlement puts a key source of legal uncertainty behind Goldman Sachs.

Sixteen of the FHFA's suits against large financial institutions have now been settled, with three cases remaining. Fannie Mae and Freddie Mac have booked sizable litigation gains related to the FHFA suits in second-half 2013 and year-to-date 2014. The gains are effectively remitted to the U.S. Treasury under the terms of the net worth sweep agreement between Treasury and GSEs.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria (Jan. 31, 2014)

Peer Review: Global Trading and Universal Banks (March 27, 2014)

Applicable Criteria and Related Research:

Peer Review: Global Trading and Universal Banks

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=742556

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

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Contacts

Fitch Ratings
Tara Kriss, +1 212-908-0369
Senior Director
Financial Institutions
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Ilya Ivashkov, CFA, +1 212-908-0769
Senior Director
Financial Institutions
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com