Hot on the heels of two similar settlements earlier in the month, the Justice Department announced on Wednesday a $5.28 billion settlement with Credit Suisse related to the company’s sale of residential mortgage-backed securities.
The Justice Department, per its statement released Wednesday, connects Credit Suisse’s conduct in the packaging, securitization, issuance, marketing and sale of RMBS between 2005 and 2007 as a factor in the 2008 financial crisis.
Attorney General Loretta E. Lynch said the Wednesday settlement reflects the Department of Justice’s commitment to accountability for the institutions found responsible for the crisis.
“Credit Suisse made false and irresponsible representations about residential mortgage-backed securities, which resulted in the loss of billions of dollars of wealth and took a painful toll on the lives of ordinary Americans,” Lynch said. “Under the terms of this settlement, Credit Suisse will pay $2.48 billion as a fine for its conduct. And Credit Suisse has pledged $2.8 billion in relief to struggling homeowners, borrowers, and communities affected by the bank’s lending practices. These sums reflect the huge breach of public trust committed by financial institutions like Credit Suisse.”
The resolution requires Credit Suisse to pay $2.48 billion as a civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). It also must provide $2.8 billion in relief to underwater homeowners, distressed borrowers, and affected communities in the form of loan forgiveness and financing for affordable housing.
Principal Deputy Associate Attorney General Bill Baer called Credit Suisse’s behavior unacceptable.
“Credit Suisse claimed its mortgage backed securities were sound, but in the settlement announced today the bank concedes that it knew it was peddling investments containing loans that were likely to fail,” Baer said. “Today's $5.3 billion resolution is another step towards holding financial institutions accountable for misleading investors and the American public.”
According to an “agreed-upon statement of facts” issued by the DOJ, Credit Suisse told investors in offering documents that the mortgage loans it securitized into RMBS “were originated generally in accordance with applicable underwriting guidelines,” except where “sufficient compensating factors were demonstrated by a prospective borrower.” It also told investors that the loans “had been originated in compliance with all federal, state, and local laws and regulations, including all predatory and abusive lending laws.”
In fact, Credit Suisse acknowledged many of those loans did not “conform to the representations” they made to investors, with some Credit Suisse employees referring to the loans as “bad loans,” “‘complete crap’ and ‘[u]tter complete garbage.’”
The Financial Fraud Enforcement Task Force’s RMBS Working Group, started under President Barack Obama, has recovered tens of billions of dollars from companies found responsible for the 2008 financial crisis, according to a DOJ statement.
The Justice Department came to two other RMBS-related settlements earlier in the week, with Moody’s Investors Service Inc., Moody’s Analytics Inc., and their parent Moody’s Corporation settling for nearly $864 million on January 13 and Deutsche Bank agreeing to a $7.2 billion settlement on January 17. Justice Department officials said the settlement with Deutsche Bank was the largest RMBS resolution to date for the conduct of a single entity.
Credit Suisse did not immediately respond to a request for comment.