The US government has arrived at multibillion-dollar settlements with Credit Suisse Group AG (CS) and Deutsche Bank AG (DB) to settle allegations involving toxic securities. It also has filed a separate lawsuit against Barclays (BARC) over its alleged sales of toxic mortgage-backed securities.
In the Deutsche Bank case, the US Justice Department had sought $14B to settle allegations that the bank sold investors toxic mortgage securities. Now, the German lender will have to pay $3.1B immediately. It has promised to pay $4.1B over five years to a US consumer relief fund. However, Deutsche Bank remains under investigation by US and UK regulator over suspect trades involving Russian stock, foreign exchange rate rigging, precious metal-related price violations, and alleged violations of US sanctions against number of countries, including Iran.
In the settlement with Credit Suisse, the bank will pay a $2.48B penalty and $2.8B in relief to communities and homeowners impacted by the drop in home prices during the financial crisis. The consumer relief will be paid over five years.
However, Credit Suisse is still under investigation by the US Department of Justice over the way it helped American clients in Israel. It was just two years ago that the DOJ ordered the Swiss lender to pay a $2.6B fine for helping US citizens in Switzerland avoid paying American taxes. Credit Suisse is also a defendant in a number of US anti-trust cases, including class action securities lawsuits over interest-rate swaps and foreign exchange rates.
News of the MBS settlements became public just as the US government announced that it is suing Barclays (BARC) and two of its ex-executives for fraudulently misleading the public when it sold tens of billions of dollars in mortgage-backed securities. The British bank and the DOJ had been in talks for months in an attempt to reach a resolution.
On Thursday, the DOJ filed its MBS fraud case against Barclays in federal court. The government is alleging that the bank’s actions, when packaging and selling residential mortgage-backed securities in the years building up to the 2008 financial crisis, caused harm to tens of thousands of investors when the housing market failed. Barclays is accused of misleading investors about the quality of the mortgages that were backing three-dozen MBS from ’05 to ’07. Over $31 billion in mortgage loans were securitized in these deals, which, according to the DOJ, proved to be “catastrophic failures.” The DOJ’s complaint contends that even investors that placed their money in AAA-rated tranches of the securitizations that were involved sustained or will likely suffer substantive losses.
The DOJ is also suing Former Barclay executives Paul K. Menefee and John T. Carroll. Menefee was the lead banker for Barclays subprime RMBS and Carroll was the lead trader for loan acquisitions.
Aside from the Justice Department lawsuit, Barclays is contending with a number of civil mortgage-backed securities fraud lawsuits.
Meantime, UBS Group AG (UBS), Royal Bank of Scotland Group Plc. (RBS), HSBC Holdings Plc. (HSBCA), Wells Fargo & Co. (WFC) and credit rating agency Moody’s Corp. remain under investigation for their handling of mortgage-backed securities sales. The US government has already reached settlements with Morgan Stanley (MS), JPMorgan Chase & Co. (JPM), and Goldman Sachs Group Inc. (GS) in the MBS fraud cases against them.
Deutsche Bank to Settle Mortgage Inquiry for $7.2B, NY Times, December 22, 2016
Credit Suisse reaches RMBS Settlement from 2007 Housing Boom, HousingWire, December 28, 2016