Swiss bank completes large settlement over toxic debt

The Swiss bank said it welcomes an "amicable settlement" Keystone

United States prosecutors and Credit Suisse separately announced a $5.28 billion (CHF5.3 billion) agreement on Wednesday to settle a US investigation into the bank’s sales of toxic mortgage debt before the global financial crisis.

Their agreement over the sales of residential mortgage-backed securities between 2005 and 2007 requires Switzerland’s second-largest bank to provide $2.8 billion in consumer relief over five years and to pay a $2.48 billion civil penalty.

Credit Suisse is not alone in the US Justice Department’s cross hairs. Germany’s Deutsche Bank agreed to a $7.2 billion settlement over its sale and pooling of toxic mortgage securities in the run-up to the financial crisis. US prosecutors also are pursuing charges against other leading global banks.

US Attorney General Loretta Lynch said the settlement with Credit Suisse underscores a commitment to hold financial institutions responsible for the global financial crisis.

“Credit Suisse made false and irresponsible representations about residential mortgage-backed securities, which resulted in the loss of billions of dollars of wealth and took a painful toll on the lives of ordinary Americans,” she said in a statementExternal link.

The required payments and civil penalty “reflect the huge breach of public trust committed by financial institutions like Credit Suisse”, she added.

Global meltdown

The collapse of US-based Lehman Brothers in September 2008 sparked the 2008-2009 global financial crisis, which led to a credit crunch and the worst recession in decades. In Europe, it evolved into the euro crisis. Zurich-based Credit Suisse, one of the global banks deemed by regulators as too big and important to fail, welcomed the agreement with US prosecutors.

“Credit Suisse is pleased to have reached an amicable settlement that allows the bank to put this legacy matter behind it, while also protecting the interests of its clients, employees and other stakeholders,” it said in a statementExternal link.

The bank, which has 47,690 employees and operates in more than 50 countries, said it would take a pre-tax charge of approximately $2 billion and tap $550 million in existing reserves to pay for the settlement. It said the charge would come from fourth-quarter results announced in mid-February.