By John Revill
ZURICH (Reuters) -Credit Suisse has agreed to pay $495 million to settle a case related to mortgage-linked investments in the United States, the latest pay-out related to past blunders that have battered the Swiss bank’s reputation.
The lender has been paying out billions of dollars to resolve legal cases linked to its residential mortgage-backed securities (RMBS) business in the run up to the 2008 financial crisis.
The decline in mortgage payments reduced the value of the assets, leading to huge losses for investors.
Switzerland’s second biggest bank is trying to move on from these legacy issues which 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 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 claimed 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 matter 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 pro-actively resolve litigation and legacy issues.”
The New Jersey case was the largest of its remaining exposure on 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 likely to be much less than $100 million, the source added.
RMBS are a debt-based securities, seen as similar to bonds, which are backed by the interest paid on home loans packaged together to sell to investors.
But poorly constructed RMBS’s contributed to the financial crisis in 2008 – when wider groups of mortgages defaulted leading to big losses.
Credit Suisse, whose share price has more than halved in the last 12 months, has already paid out huge sums to resolve claims related to the products, including a $5.3 billion deal with the Department of Justice in 2017.
It said at that time products it sold did not meet underwriting 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 release details of a much anticipated strategic review alongside third-quarter results on Oct. 27.
In June, the bank was convicted of failing to prevent money laundering by a Bulgarian cocaine trafficking gang, while a Bermuda court ruled that a former Georgian Prime Minister and his family were due damages of more than half a billion dollars from Credit Suisse’s local life insurance arm.
The U.S. Justice Department is also investigating whether Credit Suisse continued helping U.S. clients hide assets from authorities, eight years after the Swiss bank paid a $2.6-billion tax evasion settlement.
(Reporting by John Revill and Oliver Hirt; Editing by Kirsten Donovan, Mark Potter and Jane Merriman)