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Goldman just got wiped out

Julia La Roche
Goldman Sachs Group, Inc. Chairman and Chief Executive Officer Lloyd Blankfein at the Clinton Global Initiative 2014 (CGI) in New York, September 24, 2014. REUTERS/Shannon Stapleton

(Thomson Reuters)
Goldman Sachs Group Inc. Chairman and CEO Lloyd Blankfein.

Goldman Sachs' fourth-quarter earnings essentially just got wiped out.

The bank said on Thursday that it will pay a $5 billion settlement related to residential mortgage-backed securities it sold between 2005 and 2007.

Under the terms of the settlement, Goldman will pay a $2.385 billion civil monetary penalty, make $875 million in cash payments, and provide $1.8 billion in consumer relief.

The bank also said that its fourth-quarter earnings results will be reduced by approximately $1.5 billion. To put that in perspective, analysts had been expecting the bank to report net income of $1.63 billion.

Goldman is scheduled to report earnings on Wednesday, January 20.

Here's the release from the bank:

The Goldman Sachs Group, Inc. (GS) today announced that it has reached an agreement in principle to resolve the ongoing investigation of the Residential Mortgage-Backed Securities Working Group of the U.S. Financial Fraud Enforcement Task Force (RMBS Working Group).

The agreement in principle will resolve actual and potential civil claims by the U.S. Department of Justice, the New York and Illinois Attorneys General, the National Credit Union Administration (as conservator for several failed credit unions) and the Federal Home Loan Banks of Chicago and Seattle, relating to the firm's securitization, underwriting and sale of residential mortgage-backed securities from 2005 to 2007.

The agreement in principle will reduce earnings for the fourth quarter of 2015 by approximately $1.5 billion on an after-tax basis.

Under the terms of the agreement in principle, the firm will pay a $2.385 billion civil monetary penalty, make $875 million in cash payments and provide $1.8 billion in consumer relief. The consumer relief will be in the form of principal forgiveness for underwater homeowners and distressed borrowers; financing for construction, rehabilitation and preservation of affordable housing; and support for debt restructuring, foreclosure prevention and housing quality improvement programs, as well as land banks.

Lloyd C. Blankfein, Chairman and Chief Executive Officer of The Goldman Sachs Group, Inc., stated, "We are pleased to have reached an agreement in principle to resolve these matters."

The agreement in principle is subject to the negotiation of definitive documentation, and there can be no assurance that the firm, the U.S. Department of Justice and the other applicable governmental authorities will agree on the definitive documentation.

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