Summary
- Settlement ends bank’s biggest outstanding RMBS case
- Credit Suisse says settlement is completely covered by provisions
- Bank still has five cases to settle
- Expects to settle outstanding cases in next six months
Credit Suisse (CSGN.S) has accepted to pay $495 million to resolve a case related to mortgage-linked investments in the United States, the latest pay-out related to past slip-ups that have damaged the Swiss bank’s reputation.
The lender has been paying out 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. The fall in mortgage payments decreased the value of assets, causing massive losses for investors.
Switzerland’s second-biggest bank is seeking to move on from these legacy issues which have weighed on its performance and cost it billions of dollars.
The bank is also attempting to bounce back from other missteps, including taking a loss of more than $5 billion from the collapse of investment firm Archegos in 2021, when it also had to suspend client funds connected to defunct financier Greensill Capital.
The most recent RMBS case, brought by the New Jersey Attorney General, claimed Credit Suisse had “misled investors and engaged in fraud or deceit in connection with the offer and sale of RMBS.”
The attorney general’s office had laid claim to more than $3 billion in damages in a case filed in 2013.
The bank said in a statement:
“Credit Suisse is pleased to have reached an agreement that allows the bank to resolve the only remaining RMBS matter involving claims by a regulator. The settlement, for which Credit Suisse is fully provisioned, marks another important step in the bank’s efforts to pro-actively resolve litigation and legacy issues.”
The New Jersey case was the biggest of its remaining exposure on its legacy RMBS business, Credit Suisse said, with five remaining cases at various levels of litigation.
These are scheduled to be settled in the next six months, a person with knowledge of the matter told reporters. The total cost is expected to be much less than $100 million, the source added.
RMBS are debt-based securities, seen as comparable to bonds, which are financed by the interest paid on home loans packaged together to sell to investors. But badly constructed RMBS’s led to the financial crisis in 2008 – when larger groups of mortgages defaulted resulting in hefty losses.
Credit Suisse, whose share price has dropped more than 50% in the last 12 months, has already paid out large sums to resolve claims linked to the products, including a $5.3 billion deal with the Department of Justice in 2017.
Buy Crypto NowIt said at that time products it sold failed to meet underwriting guidelines. Notably, it also paid $600 million to MBIA Inc in 2021 after the New York-based municipal bond insurer paid out hundreds of millions to recompense investors.
The bank, one of the biggest in Europe and one of Switzerland’s global systemically significant banks, is expected to disclose details of a much anticipated strategic review together with third-quarter results on October 27.
In June, the bank was found guilty of failing to hinder money laundering by a Bulgarian cocaine trafficking gang, while a Bermuda court determined that a former Georgian Prime Minister and his family were to be paid damages of more than half a billion dollars from Credit Suisse’s local life insurance arm.
The U.S. Justice Department is also looking into whether Credit Suisse kept on helping U.S. clients hide assets from authorities, eight years after the Swiss bank paid a $2.6-billion tax evasion settlement.
