Credit Suisse Group AG (CSGN), Switzerland's second-biggest bank, agreed to pay $885 million to settle lawsuits by the Federal Housing Finance Agency over mortgages sold to Fannie Mae and Freddie Mac.
The company will book a charge of 275 million francs ($312 million) after taxes in the fourth quarter of 2013, resulting in a restatement of results to a net loss of 8 million francs for the period, the Zurich-based bank said today.
Credit Suisse was among 18 lenders sued by the FHFA in 2011 to recoup losses on about $200 billion in mortgage-backed securities sold to the two government-sponsored companies before the financial crisis. Nine companies, including JPMorgan Chase & Co., Deutsche Bank AG and UBS AG (UBSN), have agreed to pay more than $9.2 billion to settle similar lawsuits by FHFA.
"It's definitely good for Credit Suisse to have this thing out of the way," said Guido Hoymann, a Frankfurt-based analyst with Bankhaus Metzler.
Chief Executive Officer Brady Dougan in February called mortgage-related litigation one of the bank's two most important legal issues alongside the U.S. investigation into whether it helped Americans evade taxes. The company said today the agreement with FHFA resolves the largest mortgage-related investor litigation.
The settlement relates to about $16.6 billion of residential mortgage-backed securities sold to Fannie Mae and Freddie Mac between 2005 and 2007, the bank said. Credit Suisse will pay about $651 million to Freddie Mac and about $234 million to Fannie Mae, according to the FHFA.
The Swiss bank faces other mortgage-related litigation. The state of New Jersey in December 2013 sued Credit Suisse over claims the bank misrepresented the risk to investors on more than $10 billion in residential mortgage-backed securities. Credit Suisse said at the time the lawsuit was "without merit."
The New Jersey lawsuit was similar to the one from New York Attorney General Eric Schneiderman, who claimed in 2012 that the bank misled investors about its review of mortgages underlying securities. The bank has asked a judge to dismiss the case.
UBS, Switzerland's biggest bank, in July 2013 agreed to pay $885 million to settle a FHFA lawsuit over $4.5 billion in residential mortgage-backed securities it sponsored and $1.8 billion of third-party RMBS sold to the two agencies.
Credit Suisse said at the time that losses on the portfolio of securities the bank sold were about $100 million as the company cut back originations of mortgages "quite substantially" in 2006.
JPMorgan, based in New York, and Frankfurt-based Deutsche Bank paid $4 billion and $1.9 billion to settle their respective FHFA lawsuits. Other companies that settled similar lawsuits are Citigroup Inc., Morgan Stanley (MS), General Electric Co., Ally Financial Inc. and Societe Generale SA. (GLE) Wells Fargo & Co., which wasn't one of the 18 companies sued, also settled.