Credit Suisse reaches €508m mortgage settlement with US prosecutors

Credit Suisse has reached a $495 million (€507.6 million) settlement with US prosecutors over a case relating to financial crisis-era mortgage bonds, as the lender tries to draw a line under a swath of legal disputes racked up over the past decade.

The New Jersey attorney-general had filed a case against Credit Suisse in 2013 seeking up to $3 billion of damages over the bank’s sale of residential mortgage-backed securities dating back to before 2008.

The bank said on Monday that it had struck a settlement with New Jersey authorities, adding that it had already provisioned for the full amount and that the case was the largest remaining one linked to RMBS it had needed to resolve.

“The settlement, for which Credit Suisse is fully provisioned, marks another important step in the bank’s efforts to proactively resolve litigation and legacy issues,” the bank said in a statement.

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Credit Suisse executives, under recently installed chief executive Ulrich Körner, are in the final stages of planning a radical revamp of the business following a succession of expensive scandals in recent years.

The Financial Times reported over the weekend that the company expects the overhaul to create a capital hole of between four billion Swiss francs and SFr4.5bn (€4.1 billion — €4.6 billion), which includes restructuring and legal costs.

The New Jersey settlement is an important early victory for Markus Diethelm, who was made the bank’s general counsel in the summer. Mr Diethelm, who spent 13 years in the same role at UBS fighting legal battles stemming from the financial crisis, was brought to Credit Suisse with a mandate to clear up unresolved legal cases.

The Swiss bank was an outlier among peers in its initial decision to fight lawsuits related to the sale of RMBS, securities at the heart of the 2007-2008 financial crisis, but has changed its stance in recent years.

Credit Suisse signed a $5.3 billion settlement with the US department of justice in 2017 over its RMBS business, while it settled a separate RMBS case with financial services group MBIA for $600 million last year.

The bank said on Monday that it had five remaining RMBS cases at various stages of litigation.

Credit Suisse is currently on trial in New York over its role in foreign exchange manipulation dating back to 2007 to 2013, while it is also in the middle of a trial in Singapore in a case over its relationship with Georgia’s former prime minister, Bidzina Ivanishvili.

Billionaire Mr Ivanishvili, who is Georgia’s richest person, is pursuing the Swiss lender for up to $800 million in damages, having already been awarded $607.5 million from the bank in a related case in Bermuda this year.

The bank has set aside a total of SFr3.9 billion in net provisions for litigation since the start of 2020. — Copyright The Financial Times Limited 2022