Credit Suisse Finalizes Mortgage Securities Probe with $5.3 Billion Settlement

The Zurich-based bank will provide $2.8 billion in consumer relief in addition to a $2.48 billion cash penalty.

Credit Suisse Group AG finalized an agreement to pay U.S. authorities $5.3 billion to settle claims that it misled investors with residential mortgage-backed securities it sold in the run-up to the 2008 financial crisis, the U.S. Department of Justice said on Wednesday.

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The Zurich-based bank will provide $2.8 billion in consumer relief over five years from the settlement in addition to a $2.48 billion cash penalty, following final approval by its board of directors, it said in a statement. The Swiss lender had set aside about 2.1 billion francs ($2.1 billion) in general litigation provisions by the end of last year.

The final deal is in line with the $5 – $7 billion thaht the U.S. Department of Justice (DOJ) had asked Credit Suisse to pay earlier in negotiations, as reported back in December.

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Authorities extracted huge fines

Before the Credit Suisse deal, the U.S. regulators had already fined six major banks in the country more than $46 billion over their dealings in mortgage-backed securities. Bank of America Corp., which had the largest such settlement, agreed to pay $16.7 billion over its sale of toxic mortgage securities, also split between cash and consumer relief.

As part of the settlement, the lender acknowledged that home loans it pooled into the securities did not meet underwriting guidelines and that “it knew it was peddling investments that were likely to fail,” Principal Associate Attorney General Bill Baer said in a statement announcing the deal.

Credit Suisse added that it was “pleased to have reached an amicable settlement that allows the bank to put this legacy matter behind it.”

The deal marks a significant milestone for Swiss bank as it clears the biggest legal issue which allows the lender to go ahead with its restructuring efforts under Chief Executive Tidjane Thiam, who took the helm in 2015. However, the total amount could climb as Credit Suisse also faces an investor fraud lawsuit in New York state, related to the bank’s sale of mortgage securities before the crisis.

The announcement follows a $7.2 billion settlement in a related case by Deutsche Bank AG, which was announced earlier this week. The Justice Department also sued Barclays Plc and two former executives for fraud over its sale of mortgage bonds after the bank balked at paying the amount sought by the government in negotiations. Barclays has said that it would “vigorously defend” the case.

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