UBS will now pay a whopping $1.44bn settlement to the Department of Justice for allegedly defrauding its investors who bought bonds backed by mortgages before the financial crisis.
“The case is the last among more than a dozen DOJ prosecutions against banks and other financial institutions over securities backed by subprime loans, the agency said.
Including the UBS case, the DOJ said it reached more than $36 billion in all via settlements with banks including Bank of America, Citigroup and HSBC. Credit Suisse, now owned by UBS, paid $5.3 billion in 2016,” states WSJ.
“You dance with the devil and sell your soul,” an employee wrote about doing business with one of the lenders.
Another described a pool of loans as a “bag of s—.”
UBS initially had argued that it also was a big loser on mortgage-backed bonds and related assets, but failed in an effort to get the lawsuit dismissed.
The bank had to be bailed out by the Swiss government in 2008, largely because of losses related to those mortgage bonds.
UBS in 2018 said it invested $100 billion in the assets and lost more than $45 billion, including nearly $900 million on the deals in the DOJ complaint.
“Subprime mortgage securities helped to fuel a housing boom and bust that sent the economy into its deepest economic downturn since the Great Depression.
In 2012, the DOJ put together a task force of federal and state agencies to prosecute banks and other involved parties,” said WSJ.
UBS stock is currently up more than +24% this year-to-date.
Also Read: Credit Suisse is Now Getting Sued Over a Margin Call
UBS/Credit Suisse Faced $388m in Fines Just Weeks Ago
UBS and Credit Suisse faced a whopping $388 million in fines in late July according to the latest financial reports and data.
Credit Suisse has been issued fines totaling $388 million for “significant failures in risk management and governance between 1 January 2020 and 31 March 2021”.
The fines are the result of a co-ordinated investigation between the UK’s Prudential Regulation Authority (PRA), the Swiss Financial Market Supervisory Authority (FINMA) and the US Federal Reserve.
UBS Group AG says it will pay $269 million to the Federal Reserve and a further $119 million to the PRA.
The latter fine was reduced from $160 million for the bank’s co-operation in resolving the issue.
The issue arose out of Credit Suisse’s dealings with the former US asset management firm Archegos Capital Management, to which it provided prime brokerage services and engaged in equity total return swaps (TRS).
However, when the asset management firm imploded in March 2021 after defaulting on its margin calls, it left Credit Suisse with losses totalling $5.1 billion, with the PRA stating that it resulted in “significant financial and reputational damage” for the bank, reports Fintech Futures.
The PRA says that the ensuing investigation found that the bank’s risk management oversight and corresponding practices “fell well below the regulatory standards required” and that it presented “an unsound risk culture within the business line that failed to balance considerations of risk against commercial reward appropriately”.
Sam Woods, deputy governor for prudential regulation and CEO of the PRA, says: “Credit Suisse’s failures to manage risks effectively were extremely serious, and created a major threat to the safety and soundness of the firm.
“The seriousness and widespread nature of those failures has led to today’s fine, which is the largest ever imposed by the PRA.”
Also Read: Analysts Make Painful Decision to Downgrade Big Banks
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