Credit Suisse pays $495 mln to settle legacy U.S. case

  • Settlement ends bank’s largest ongoing RMBS deal
  • Credit Suisse says settlement is fully covered by provisions
  • The bank still has five cases to solve
  • Expects to resolve outstanding cases within the next six months

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

The lender shelled out billions of dollars to resolve legal cases related to its residential mortgage-backed securities (RMBS) business on the eve of the 2008 financial crisis.

Falling mortgage payments have reduced asset values, leading to huge losses for investors.

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The second largest bank in Switzerland is trying to get out of these problems inherited from the past which have weighed on its performance and cost it billions of dollars.

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

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

The attorney general’s office had sought 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 remaining RMBS case involving claims by 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 to its legacy RMBS business, Credit Suisse said, with five cases remaining at 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 will likely be well under $100 million, the source added.

RMBS are debt-based securities, considered similar to bonds, that are backed by interest paid on pooled home loans to be sold to investors.

But poorly constructed RMBS contributed to the financial crisis of 2008 – when larger groups of mortgages defaulted, leading to heavy losses.

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

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

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

The bank, one of Europe’s largest and one of Switzerland’s global systemically important banks, is expected to release details of a highly anticipated strategic review alongside third-quarter results on Oct. 27.

In June, the bank was found guilty of failing to prevent money laundering by a Bulgarian gang of cocaine smugglers, while a court in Bermuda ruled that a former Georgian prime minister and his family owed damages -interest of more than half a billion dollars to the local life insurance of Credit Suisse. arms.

The US Department of Justice is also investigating whether Credit Suisse continued to help US clients conceal assets from authorities, eight years after the Swiss bank paid a 2.6 tax evasion settlement. billions of dollars.

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Reporting by John Revill and Oliver Hirt; Editing by Kirsten Donovan, Mark Potter and Jane Merriman

Our standards: The Thomson Reuters Trust Principles.

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