Credit Suisse finalizes $5.3 bln mortgage deal with U.S.

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By Karen Freifeld

<span class="articleLocation”>Credit Suisse formally agreed to pay
$5.3 billion to settle with U.S. authorities over claims it
misled investors in residential mortgage-backed securities it
sold in the run-up to the 2008 financial crisis, the U.S.
Department of Justice said on Wednesday.

Zurich-based Credit Suisse will pay a $2.48 billion cash
penalty and provide $2.8 billion in consumer relief, including
loan forgiveness and financing for affordable housing, the
Justice Department said in a statement.

“The bank concedes that it knew it was peddling investments
that were likely to fail,” Principal Associate Attorney General
Bill Baer said in the statement.

Credit Suisse, which had announced the agreement in
principle on Dec. 23, said in a statement it was “pleased to
have reached an amicable settlement that allows the bank to put
this legacy matter behind it.”

Shares of Credit Suisse on the Swiss stock exchange closed
down 2.5 percent at 15.28 Swiss francs, a steeper drop than the
broader European banking sector.

In a statement of facts, Credit Suisse acknowledged it knew
the loans it pooled into securities did not meet underwriting

Credit Suisse employees referred to some loans in emails as “complete crap” and ” tter complete garbage,” the statement of
facts said.

In one pool of 10,000 loans the bank bought from
Countrywide Home Loans, a small sample showed that 85 percent of
the loans violated Countrywide’s underwriting guidelines or
applicable law, the statement said.

Credit Suisse securitized over half the loans in the sample and $1.5 billion worth of other loans in the pool.

“Thanks for working through this mess,” one Credit Suisse
manager wrote to another about those loans. “If it helps, it
looks like we will make a killing on this trade.”

The announcement of the Credit Suisse deal came the day
after Deutsche Bank formally agreed to a $7.2 billion
settlement over its sale of toxic mortgage securities, also
split between cash and consumer relief. Deutsche Bank said in
September the Justice Department had initially demanded twice
that figure.

The U.S. authorities sued Barclays and two former
executives on Dec. 22 over similar claims. Barclays said it
would “vigorously defend” the case.

The settlements and lawsuit stem from an initiative launched
in 2012 by U.S. President Barack Obama to hold Wall Street
accountable for misconduct in the sale of the securities that
helped trigger the worst economic crisis since the Great

Major U.S. banks, including JPMorgan Chase & Co and
Bank of America Corp, have paid a total of $46 billion to resolve similar claims.

While the Credit Suisse settlement will likely be the last
under the Obama administration, other banks under investigation
include Royal Bank of Scotland, Wells Fargo & Co
, UBS Group AG and HSBC. (Additional reporting by Joshua Franklin in Zurich)

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