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GE finalises US$1.5b DOJ settlement over old subprime unit

New York

GENERAL Electric Co (GE) finalised an agreement to pay US$1.5 billion to settle a US investigation into the manufacturer's defunct subprime-mortgage business.

The civil penalty will resolve claims that WMC Mortgage, a former unit of GE's finance arm, misrepresented the quality of residential mortgage-backed securities, the US Justice Department said in a statement on Friday. GE, which first revealed the agreement in principle earlier this year, didn't admit liability.

"The financial system counts on originators, which are in the best position to know the true condition of their mortgage loans, to make accurate and complete representations about their products," assistant attorney general Jody Hunt said in the statement. "The failure to disclose material deficiencies in those loans contributed to the financial crisis."

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For GE, the agreement underscores chief executive officer Larry Culp's push to resolve a series of lingering issues weighing on the company's turnaround effort. Since taking the helm at the beleaguered manufacturer in October, Mr Culp has sought to reduce debt, strengthen the balance sheet and refashion GE into a smaller and more stable company.

"This is another step in our ongoing efforts to de-risk GE Capital," the company said in a separate statement. "This agreement represents a significant part of the total legacy exposure associated with WMC and we are pleased to put this matter behind us."

GE shares advanced 20 per cent this year through Thursday after steep declines in the past two years as the company grappled with cash-flow shortfalls and a downturn in its power-equipment business.

GE's WMC unit originated more than US$65 billion in mortgage loans between 2005 and 2007, the vast majority of which were sold to investment banks, which then issued the securities, according to the Justice Department.

GE had acquired WMC in 2004.

The government alleged that between 2005 and 2007, WMC analysts responsible for underwriting mortgages were encouraged to approve loans in order to meet volume targets, even when the applications didn't meet the company's guidelines. BLOOMBERG