The US Department of Justice is asking Credit Suisse to pay between $5 billion and $7 billion to settle an investigation into its selling of mortgage-backed securities, a source with knowledge of the matter told Reuters on Tuesday.
The claim against Credit Suisse, which is likely to be negotiated in 2017, far outstrips the bank’s and investors’ expectations. Additionally, key government officials involved in the negotiations could be changed when President-elect Donald Trump takes office next month.
While it is yet to become clear what the final payment will be, the source told Reuters that “Credit Suisse is confident of reaching a better solution.” However, the Department of Justice has taken a tough stance in settlement negotiations with other banks, requesting sums higher than the eventual fine. But if it were to be as high as the proposed sums, this would be a severe strain for the Swiss lender’s fragile finances and would likely further hurt investor confidence.
In a similar case, rival Deutsche Bank has vowed in September to challenge a $14 billion claim by the US authorities to settle claims that it misled mortgage bond investors during the financial crisis.
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While Deutsche is the first European bank to have started negotiations to settle civil claims over dealings in shoddy mortgages, the bank’s woes are having a knock-on effect for other large European banks that are also waiting to agree settlements for similar allegations.
Europe’s Deutsche Bank, Royal Bank of Scotland, Credit Suisse, Barclays, UBS and HSBC are among others waiting for settlement talks to be concluded.
The penalty aims to settle the Justice Department’s allegations tied to mortgage-backed securities about the way the bank selected mortgages, packaged them into bonds and sold on to investors in the run-up to the 2008 financial crisis.
Credit Suisse has not said what it has set aside in anticipation of a settlement over the sale and packaging of resident mortgage-backed securities before 2008, but its overall legal provisions stood at CHF 1.605 billion ($1.56 billion) at the end of 2015.