Credit Suisse agrees to $5.3 billion mortgage settlement with US

The US Department of Justice had been demanding a fine of between $5 billion and $7 billion over Credit Suisse's sale of mortgage securities Keystone

Credit Suisse has agreed in principle to pay US authorities $2.48 billion (CHF2.54 billion) to settle claims it misled investors in residential mortgage-backed securities it sold in the run-up to the 2008 financial crisis, the Swiss bank announced on Friday.

Credit Suisse said it would also provide $2.8 billion in consumer relief over five years from the settlement, it said in a statement, adding the deal was subject to negotiation of final documentation and approval by its board of directors.

“Credit Suisse will take a pre-tax charge of approximately $2 billion in addition to its existing reserves against these matters. This will be taken in our 4Q 2016 financial results,” it added.

A report by Morgan Stanley Research said the ‘removal of uncertainty was positive’ but the fine was larger than expected so it will eat into Credit Suisse’s capital buffer against risk.

It was also reported on Friday that Deutsche Bank had agreed to a $7.2 billion settlement with the US Department of Justice (DOJ) over its sale and pooling of toxic mortgage securities in the run-up to the 2008 financial crisis. Deutsche Bank had originally been asked to pay $14 billion.

“I think the fines are reasonable and represent a positive for the system,” Alberto Gallo, head of global macro strategies at hedge fund Algebris Investments, told Reuters.

The DOJ on Thursday also sued Barclays Plc on charges of fraud in the sale of mortgage-backed securities in the run-up to the 2008-09 financial crisis.

The Justice Department is still pursuing mortgage allegations against other lenders in addition to Barclays. Royal Bank of Scotland Group PLC, Wells Fargo & Co, UBS Group AG and HSBC are also under investigation, according to company disclosures.

American banks have paid tens of billions of dollars over the past three years to settle with US authorities over misleading investors about the quality of mortgages underlying securities.

In 2013, JPMorgan Chase & Co agreed to pay $13 billion. The following year, Bank of America Corp agreed to pay $16.65 billion, while Citigroup cut a deal for $7 billion. In February this year, Morgan Stanley agreed to pay $2.6 billion, and in April, Goldman Sachs Group Inc negotiated a $5 billion deal.

Raiffeisen cleared of tax evasion

In a separate development, Switzerland’s third largest banking group, Raiffeisen, has been given a clean bill of health by the United States authorities investigating tax evasion offences.

The St Gallen-based banking cooperative had denied having any untoward involvement with US clients when registering in 2014 to a Swiss-US deal to clear up tax evasion issues in the Swiss banking sector.

On Friday, Raiffeisen announced that the US Department of Justice (DoJ) had agreed with its self-assessment as a ‘category 3’ bank under the system – ie having no case to answer.

The DoJ has fined 80 ‘category 2’ Swiss banks some $1.3 billion (CHF1.3 billion) under the Swiss Bank Program, designed to allow banks to come clean in order to avoid criminal prosecution.

Several other (category one) Swiss banks have been subject to criminal prosecution in the US for tax evasion offences. In 2009 UBS was forced to pay $980 million, while Credit Suisse was slapped with a combined penalty of $2.8 billion in 2014.

A handful of other ‘category one’ banks still await judgement in the US, including Pictet and the Basel and Zurich cantonal banks. They could be subject to large fines and criminal prosecution.