Credit Suisse (VTX:CSGN) Agrees On $5.3 Billion Mortgage Securities Deal

33

The Zurich-based Credit Suisse Group (VTX:CSGN) has agreed formally to make a payment of $5.3 billion to settle claims that they mislead investors on purpose regarding residential mortgage-backed securities, which played a key role in the eventual financial crisis of 2008 that rocked the US and many other parts of the world. Credit Suisse will now pay a cash penalty of $2.48 billion, and a further $2.8 billion towards consumer relief, which includes financing for affordable housing and loan forgiveness. The amount is to be paid over a period of five years.

Credit Suisse Acknowledges Misleading Investors

Department of Justice of the United States disclosed claimed the Group has acknowledged on Wednesday that the home loans they pooled into securities didn’t meet the underwriting guidelines. In fact, they were so bad that employees of Credit Suisse described some of them as “complete garbage” and “complete crap”.

Bill Baer, the Principal Associate Attorney said, “The bank concedes that it knew it was peddling investments that were likely to fail”.

Credit Suisse issued a statement too saying they were pleased to reach an amicable settlement and move on after the issue. Last December, the Group had agreed on principle to settle the mortgage securities crisis with the Department of Justice.

Trouble Is Not Over Yet for the Credit Suisse Group

However, criminal charges may still be filed against the Credit Suisse since the Group acknowledged the fact that they knew the investments were likely to fail. This civil settlement does not prevent the government from filing the charges against individual executives or the company.

For now, though, this is a big relief for Credit Suisse. But the total penalty amount is likely to go up as Credit Suisse (VTX:CSGN) is still defending themselves against lawsuits filed by attorneys in New Jersey and New York over similar claims that involve billions of dollars lost by investors.

Credit Suisse is of course not the only financial institution in trouble. Deutsche Bank (ETR:DBK) and Barclays have also been charged. While Deutsche Bank opted for the settlement route like Credit Suisse and agreed to make a payment of $7.2 billion, split over consumer relief and cash, Barclays of Britain vigorously defended their position saying they did no wrong.

Major banks such as Bank of America, JPMorgan Chase, Royal Bank of Scotland, Wells Fargo, and HSBC have also decided to settle similar cases paying a penalty of $46 billion in total.