Subprime mortages were at the heart of the 2008 financial crisis
Credit Suisse said Monday it would pay $495 million to settle a row over mortgage-backed securities dating back to the 2008 financial crisis.
Switzerland’s second-biggest bank said it had agreed with New Jersey authorities to make the “one-time payment… to fully resolve claims” for compensation, and said it had already provisioned the amount.
In the claim filed in 2013, Credit Suisse was criticised for not having provided sufficient information on the risks relating to $10 billion of mortgage-backed securities.
Subprime mortgages, credit granted to borrowers often with poor credit histories or insufficient income, were packaged into financial products and sold to investors.
But as borrowers defaulted on many of those mortgages, investors had no way of telling what portion of the loans in the derivatives were bad.
Those products were at the heart of the 2008 financial crisis, which sparked a global recession and brought the international financial system to the brink of collapse.
Credit Suisse said the final settlement with the New Jersey Attorney General allowed it “to resolve the only remaining RMBS (residential mortgage-backed securities) matter involving claims by a regulator and the largest of its remaining exposures on its legacy RMBS docket”.
Shares rose after the statement on the SMI, the flagship index of the Swiss Stock Exchange.
Speculation has been growing ahead of an update scheduled by the new chief executive for later this month.
According to the Financial Times, the bank is considering not only disposals in its investment bank but also the sale of some of its domestic activities in Switzerland.
– Financial crisis fines –
In January 2017, US authorities forced Credit Suisse to pay out $5.28 billion over its role in the subprime crisis — three years after it was fined $2.6 billion for helping Americans avoid taxes.
Last year, Credit Suisse also paid $600 million to financial guarantee insurer MIBA to settle other long-running litigation connected to the US subprime mortgage crisis.
The bank said last January it was increasing the provisions set aside for the MBIA case and others involving mortgage backed securities by $850 million.
Some of the world’s biggest banks have also faced legal claims after the 2008 financial crash.
German banking giant Deutsche Bank agreed in December 2016 to pay $7.2 billion to settle a case with the US Department of Justice.
And British banking giant Barclays reached a deal in 2018 to pay a US fine of $2 billion over a fraud case involving subprime mortgage derivatives.
The Bank of America meanwhile agreed to a $17 billion deal with US authorities in 2014 to settle claims it sold risky mortgage securities as safe investments ahead of the 2008 financial crisis.
