Swiss bank Credit Suisse has announced it has reached a final settlement with the U.S. Department of Justice related to its legacy Residential Mortgage-Backed Securities business, paying a multi billion dollar fine.
The litigation over mortgage securities was one of the last large chunks of litigation hanging over Zurich-based Credit Suisse (CS) – a vestige of the years before the financial crisis of 2008-09, when the bank was a Wall Street powerhouse.
U.S. rivals and most recently Deutsche Bank have paid billions to settle legal problems which have ensued from the practice of selling toxic securities up to 2007.
Over $5 Billion - A Good Result?
The settlement releases CS from potential civil claims by the Department of Justice (DOJ) related to its securitization, underwriting and issuance of Residential Mortgage-Backed Securities (RMBS).
Under the terms of the settlement, CS will pay to the DOJ a civil monetary penalty of $2.48 billion. In addition, CS will also provide consumer relief totaling $2.8 billion within five years post settlement.
Complete Crap and Garbage
At the time CS traders had referred to the loans as «complete crap» and «utter complete garbage.»
These consumer relief measures include affordable housing payments and 1st and 2nd lien principal and interest forgiveness. The DOJ and CS agreed to the appointment of an independent monitor to oversee the completion of the consumer relief requirements of the settlement.
CS will take a pre-tax charge of approximately 2 billion in addition to its existing reserves of $550 million against this matter.
This charge will be taken in its fourth quarter 2016 financial results, which will be announced on February 14, 2017.
