Zurich - Credit
Suisse Group agreed to pay $5.28 billion to resolve a US investigation into
its business in mortgage-backed securities as officials work through a backlog
of crisis-era bank cases.
The Swiss lender
will pay a $2.48 billion civil penalty and $2.8 billion in relief for
homeowners and communities hit by the collapse in home prices, it said in a
statement Friday. Credit Suisse will take a pretax charge of about $2 billion
in addition to its existing reserves during the fourth quarter.
The announcement
follows a $7.2 billion settlement in a related case by Deutsche Bank, which was
announced earlier on Friday. The Justice Department on Thursday sued
Barclays for fraud over its sale of mortgage bonds after the bank balked at
paying the amount the government sought in negotiations. The lawsuit announced
on Thursday is rare for big banks, which typically settle with the government
rather than risk drawn-out litigation and a possible trial.
“With this
settlement, the largest remaining major uncertainty is now eliminated” for
Credit Suisse, said Peter Casanova, an analyst at Kepler Cheuvreux who has
a buy rating on the stock. “This is good news.”
Read also: Barclays to face off against US
The Obama
administration is pressing to wrap up investigations of Wall Street firms for
creating and selling the subprime mortgage bonds that fuelled the 2008
financial crisis. Before the two deals on Friday, authorities had already
extracted more than $46 billion in fines from six US financial institutions
over their dealings in mortgage-backed securities. Bank of America, which had
the largest such settlement, agreed to pay $16.7 billion over bonds that were
worth four times those of Deutsche Bank.
Deutsche Bank
will pay a $3.1 billion civil penalty and provide $4.1 billion in relief to
consumers under a settlement in principle with U.S. authorities. The fine will
cut pretax profit by $1.2 billion this quarter as the firm taps existing legal
reserves to blunt much of that cost. The deal is far below the Justice
Department’s initial request of $14 billion, which had spooked stock and bond
holders earlier this year.
Thiam’s strategy
Deutsche Bank’s
deal “might help in the short run because a major source of uncertainty has
been cleared,” said Michael Huenseler, an investor at Assenagon Asset
Management, which owns shares in the bank. “But it’s still higher than many
have expected and it will pose a long-term drag on profitability.”
Deutsche Bank
shares have fallen 21 percent this year, and Credit Suisse is down 29 percent.
Credit
Suisse said it would pay the consumer relief over five years following the
settlement. The bank had set aside about 2.1 billion francs ($2.1 billion) in
general litigation provisions by the end of the third quarter.
Read also: Deutsche Bank to settle US probe for $7.2bn
CEO Tidjane
Thiam tapped shareholders for 6 billion Swiss francs in late 2015 while
shifting the company’s focus away from capital-heavy investment banking toward
wealth management. Thiam has updated investors twice on his plan, which
includes a partial initial public offering of its Swiss unit in late 2017. In
December, the former insurance executive pledged more cost cuts and lowered
targets for the international wealth management and its Asian unit.
Remaining probes
The Swiss bank
remains under Justice Department scrutiny over its handling of US clients in
Israel. The department fined Credit Suisse $2.6 billion in 2014 for helping
Americans dodge taxes in Switzerland. The bank is also a target of several
antitrust cases in the US, including class actions related to foreign-exchange
rates and interest-rate swaps.
Deutsche Bank
has yet to resolve probes into whether it manipulated foreign-currency rates
and precious metals prices and whether it facilitated transactions that helped
investors illegally transfer billions of dollars out of Russia. It also faces
civil lawsuits related to claims that its traders manipulated key interbank
interest rates. It isn’t clear how much more wrapping up these cases will cost.
At least three
other European banks remain under investigation over the role of their mortgage-backed
securities business: UBS Group, HSBC Holdings and Royal Bank of Scotland Group.
In addition to Bank of America, US banks that have settled include Goldman
Sachs Group, JPMorgan Chase & Co and Morgan Stanley. Wells Fargo & Co
and Moody’s have disclosed US investigations into their mortgage-backed
securities dealings and have said they’re cooperating.
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