Legacy issues from the global financial crisis are keeping Credit Suisse busy. The Swiss bank must defend itself in London over subprime mortgages.
Credit Suisse faces a $160 million lawsuit in London's High Court today over fraudulent misrepresentations in connection with a mortgage-backed securities deal.
The suit was brought by Loreley Financing, a subsidiary of German bank IKB, which alleges Credit Suisse misled it with false statements in a $100 million investment in 2007.
False Information
The IKB subsidiary bought bonds from Credit Suisse linked to a portfolio of securities backed by residential real estate loans which the global financial crisis rendered worthless by 2010.
Credit Suisse knew that third-party firms charged with clearing the loans had flawed processes, that appraised values were overstated, and that it securitized many risky subprime loans without subjecting them to credit and compliance reviews, the plaintiff alleges.
Billion-Dollar Settlement
The sale of residential mortgage-backed securities by Credit Suisse and other banks is considered a major cause of the 2008 global financial crisis, which led to billions in losses for investors and a global economic slump. As a result, the Swiss bank had to pay $5.28 billion to the US Department of Justice (DOJ) in 2017 to settle investigations into the bank.
According to Loreley, Credit Suisse is now trying to distance itself from the DOJ's statements, arguing the settlement at the time and the agreed statement of facts did not prove wrongdoing by the bank.
Former Credit Suisse Employees to Testify
The trial is expected to last about eight weeks. Several former Credit Suisse employees who were involved at the time will testify, with the lawsuit naming 14 of those allegedly involved in the case. The court will hear testimony from five former Credit Suisse employees who were involved in the alleged misconduct, according to reports.
Credit Suisse has paid hundreds of millions of dollars in recent years to settle similar lawsuits. The case is one of many legacy cases and regulatory investigations that could come UBS' way following the takeover of its rival.
