Credit Suisse pays $495 million to settle US legacy case

  • Settlement Ends Bank’s Largest Pending RMBS Case
  • Credit Suisse says settlement is fully provisioned
  • The bank still has five cases to resolve
  • He hopes to resolve the pending cases in the next six months.

ZURICH, Oct 17 (Reuters) – Credit Suisse (CSGN.S) agreed to pay $495 million to settle a case involving investments linked to mortgages in the United States, the latest payment related to past mistakes that have damaged the Swiss bank’s reputation.

The lender has been paying billions of dollars to settle legal cases related to its residential mortgage-backed securities (RMBS) business in the run-up to the 2008 financial crisis.

Decreasing mortgage payments lowered asset values, causing huge losses for investors.

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Switzerland’s second-largest bank is trying to overcome these legacy issues that have affected its performance and cost it billions of dollars.

The bank is also trying to recover from other mistakes, including losing more than $5bn to the collapse of investment firm Archegos last year, when it also had to suspend client funds linked to defunct Greensill financier. Capital.

The latest RMBS case, brought by the New Jersey Attorney General, alleged that Credit Suisse had “misled investors and engaged in fraud or deception in connection with the offer and sale of RMBS.”

The attorney general’s office had claimed more than $3 billion in damages in a case filed in 2013.

“Credit Suisse is pleased to have reached an agreement that allows the bank to resolve the only outstanding RMBS issue related to claims from a regulator,” the bank said in a statement.

“The settlement, for which Credit Suisse is fully provisioned, marks another important step in the bank’s efforts to proactively resolve litigation and legacy issues.”

The New Jersey case was the largest of its remaining exposure in its legacy RMBS business, Credit Suisse said, with five cases remaining in various stages of litigation.

These are expected to be resolved within the next six months, a person familiar with the matter told Reuters. The total cost is likely to be much less than $100 million, the source added.

RMBS are debt-based securities, thought to be similar to bonds, that are backed by interest paid on mortgage loans packaged for sale to investors.

But poorly constructed RMBS contributed to the 2008 financial crisis, when broader pools of mortgages defaulted and caused huge losses.

Credit Suisse, whose share price has more than halved in the past 12 months, has already shelled out huge sums to settle product-related claims, including a $5.3 billion settlement with the Justice Department in 2017. .

He said at the time that the products he was selling did not meet subscription guidelines.

It also paid $600 million to MBIA Inc last year after the New York-based municipal bond insurer paid out hundreds of millions to compensate investors.

The bank, one of Europe’s largest and one of Switzerland’s Global Systemically Important Banks, is scheduled to release details of a long-awaited strategic review along with third-quarter results on October 27.

In June, the bank was convicted of failing to prevent money laundering by a Bulgarian cocaine gang, while a Bermuda court ruled that a former Georgian prime minister and his family should pay more than $500 million in damages. dollars of local life insurance from Credit Suisse. arm.

The US Justice Department is also investigating whether Credit Suisse continued to help US clients hide assets from authorities, eight years after the Swiss bank paid out a $2.6 billion tax evasion settlement.

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Information from John Revill and Oliver Hirt; Edited by Kirsten Donovan, Mark Potter and Jane Merriman

Our standards: The Thomson Reuters Trust Principles.

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