Credit Suisse pays $495 million to settle an old US case

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

ZURICH, Oct 17 (Reuters) – Credit Suisse ( CSGN.S ) has agreed to pay $495 million to settle a case related to mortgage-related investments in the United States, the latest payout related to past blunders that have damaged the Swiss bank’s reputation .

The lender has paid out billions of dollars to resolve legal cases related to mortgage-backed securities (RMBS) in the run-up to the 2008 financial crisis.

The decline in mortgage payments reduced the value of assets, leading to large losses for investors.

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Switzerland’s second-largest bank is trying to move on from these old problems that have dogged its performance and cost it billions of dollars.

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

The latest RMBS case, brought by the New Jersey Attorney General, alleged that Credit Suisse had “misled investors and engaged in fraud or deceit in connection with the offering and sale 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, to which Credit Suisse has fully committed, marks another important step in the bank’s efforts to proactively resolve litigation and past issues.”

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

These are expected to be resolved in 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 is a debt-based security, seen as similar to bonds, that is backed by the interest paid on mortgages packaged together to sell to investors.

But poorly constructed RMBSs contributed to the 2008 financial crisis – when broader groups of mortgages defaulted and led to huge losses.

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

It said at the time that the products it was selling did not meet warranty 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 the largest in Europe and one of Switzerland’s global systemically important banks, is scheduled to publish 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 court in Bermuda ruled that a former Georgian prime minister and his family should be awarded more than half a billion dollars in damages from Credit Suisse’s local life insurance. 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 a $2.6bn tax evasion settlement.

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

Our standards: Thomson Reuters Trust Principles.

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