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A civil lawsuit over crisis-era mortgages puts UBS on the back foot. The Swiss bank and American prosecutors are already crossing swords. 

As a seller of dud mortgage securities, UBS «not only caused direct harm to those investors, but also contributed to the financial crisis of 2008,» U.S. Attorney Richard Donoghue wrote in a civil complaint against the Swiss-based bank in the Eastern District of New York.

American prosecutors are keen to hold UBS accountable for this alleged crime. Meanwhile, the bank rejected a $2 billion settlement offer before the complaint was filed this week, according to news agency «Reuters».

UBS' Own Massive Losses

The bank is accused of misleading clients about the risks attached to the sophisticated instruments. UBS is responsible for «catastrophic losses» on 40 residential mortgage-backed securities deals, the U.S. Justice Department (DOJ) said.

UBS' initial counterargument couldn't be simpler: the bank itself plowed $100 billion into the products, which were underpinned by mortgages of U.S. real estate. The result? Losses of more than $45 billion. 

The Swiss bank was the biggest loser – to the tune of $900 million – on the RMBS products, a bigger loss than any other client of UBS. «This fact alone negates any inference that UBS engaged in an intentional fraud that was flatly against its own economic interest,» the bank hit back.

Selectively Informed?

The DOJ claims that UBS' lies to RMBS investors «resulted in massive losses to investors, harmed homeowners, and ultimately jeopardized the banking system.» UBS left out critical details about the RMBS when selling them, according to the DOJ. 

The bank disagrees, arguing that the epic meltdown in housing prices which tipped the world into financial crisis was unprecedented and unexpected. Many factors contributed to the housing bubble, UBS counters, including low interest rates and government policy.