Credit Suisse settled and agreed to pay $495 million to resolve a dispute involving mortgage-linked transactions in the United States. In turn, this is the most recent settlement related to prior mistakes that have damaged the reputation of the Swiss bank.
Prior to the 2008 financial crisis, the lender spent billions of dollars settling legal disputes involving its residential mortgage-backed securities (RMBS) business.
Yet, due to the assets’ declining value as a result of the declining mortgage payments, investors suffered significant losses.
However, the second-largest bank in Switzerland is attempting to get past the legacy problems that have hindered its performance and cost it billions of euros.
Furthermore, the bank is also attempting to bounce back from past errors, such as losing more than $5 billion as a result of the collapse of investment firm Archegos last year. Then, it was also forced to halt client money connected to failed financier Greensill Capital.
The New Jersey Attorney General’s latest RMBS lawsuit claimed Credit Suisse had “misled investors and engaged in fraud or deceit in connection with the offer and sale of RMBS.”
Moreover, in a 2013 lawsuit, the attorney general’s office sought damages of more than $3 billion.
According to a statement from the bank, “Credit Suisse is happy to have secured an agreement that permits the bank to resolve the sole remaining RMBS dispute involving claims by a regulator.”
With five additional instances in various stages of litigation, the New Jersey case was the largest of its remaining exposure on its historical RMBS business, according to Credit Suisse.
As stated by a person acquainted with the situation, these should be handled within the next six months. Regarding the source, the whole cost will probably be far lower than $100 million.
In fact, RMBS are debt-based securities that are packaged together to be sold to investors. Also, they are backed by the interest paid on house loans and are thought of as being similar to bonds.
Nevertheless, poorly made RMBSs contributed to the financial crisis in 2008, which was brought on by larger groups of mortgages defaulting and causing significant losses.
