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Credit Suisse raises provisions in US mortgage securities case

Saturday, February 28, 2015 - 13:08
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Credit Suisse said on Friday it would put aside more funds for a US probe and other litigation about whether the Swiss bank deceived investors in risky mortgage-backed securities it had issued in the run-up to the financial crisis.

[ZURICH] Credit Suisse said on Friday it would put aside more funds for a US probe and other litigation about whether the Swiss bank deceived investors in risky mortgage-backed securities it had issued in the run-up to the financial crisis.

The Zurich lender's surprise move to tack on 277 million Swiss francs (US$290.66 million) to legal reserves and revise fourth-quarter results of just two weeks ago comes one day after US rival Morgan Stanley said it expected to pay US$2.6 billion to resolve potential claims stemming from its sale of mortgage bonds before the financial crisis. "Developments in industry-wide litigation and investigations in the United States relating to mortgages have resulted in an increase in provisions relating to this issue subsequent to the disclosure of the bank's preliminary 2014 results," Credit Suisse said in a statement late on Friday, without elaborating.

The US government's examination of financial crisis-era mortgage abuses is now Credit Suisse's biggest legal worry, after it last year set aside a years-long US probe into its dealings with Americans evading taxes by pleading guilty to a criminal charge and agreeing to pay more than US$2.5 billion in penalties.

The Swiss bank now puts an estimate for legal issues that it hasn't provisioned for at up to 1.8 billion francs, from what it had originally put at up to 1.3 billion francs.

In December, a New York state judge rejected a motion to dismiss a New York case against the Swiss bank over accusations that it deceived investors in mortgage-backed securities.

New York Attorney General Eric Schneiderman filed the case in 2012, accusing the bank of misrepresenting the quality of loans underlying securities issued in 2006 and 2007.

Investors suffered US$11.2 billion in losses on the securities, according to Schneiderman's lawsuit.

Matt Mittenthal, a spokesman for Schneiderman, declined to comment on Credit Suisse's legal provisions.

Schneiderman is co-chair of a joint federal-state working group created in 2012 by President Barack Obama to go after misconduct in the pooling and sale of mortgage securities that helped lead to the 2008 financial crisis.

Credit Suisse has said it would appeal the ruling allowing the lawsuit to go forward. Drew Benson, a New York-based spokesman for Credit Suisse, declined comment on Friday beyond the bank's statement.

In August, Bank of America agreed to pay over US$16 billion, Citigroup in July agreed to pay US$7 billion, and JPMorgan Chase & Co agreed to pay US$13 billion in 2013 in settlements with US state and federal authorities over charges they misled investors into buying troubled mortgage-backed securities.

REUTERS

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