Credit Suisse Group AG, Switzerland’s second-biggest bank, is set to weather a possible settlement tied to U.S. mortgage-backed bond sales, Chief Executive Officer Brady Dougan said.
“We clearly feel we’re adequately positioned and we’ll see how the process moves forward in terms of the timetable and result,” Dougan told analysts on a conference call today, adding that the bank reviews all litigation provisions quarterly.
UBS AG, Switzerland’s biggest bank, said this week it reached an agreement in principle with the U.S. Federal Housing Finance Agency to settle claims related to residential mortgage-backed securities offerings between 2004 and 2007. The bank didn’t disclose the cost of the settlement, which was included in about 765 million francs ($815 million) in charges in the second quarter as well as previous provisions that amounted to $658 million by the end of 2012.
“We are surprised about the potential magnitude of charges and potential impact/capital at risk it could generate for other global investment banks,” Kian Abouhossein and Amit Ranjan, JPMorgan Chase & Co. analysts in London who rate Credit Suisse overweight, wrote in a note to clients.
The FHFA sued UBS in 2011 over $4.5 billion in residential mortgage-backed securities that the bank sponsored and $1.8 billion of third-party RMBS sold to Fannie Mae and Freddie Mac, claiming the bank misstated the securities’ risks. These suits alleged losses of at least $1.2 billion plus interest.
The FHFA also sued 17 other banks, including Credit Suisse, later that year, seeking to recover losses on $196 billion in mortgage-backed bonds sold to Fannie Mae and Freddie Mac, which have operated under U.S. conservatorship since 2008. Citigroup Inc. reached a settlement with the FHFA in May on a lawsuit over $3.5 billion in bonds the bank sold to Fannie Mae and Freddie Mac. The lawsuit said the housing agencies bought $14.1 billion from Credit Suisse.
Dougan, 53, said the performance of bonds sold to Fannie Mae and Freddie Mac should be considered, not just the notional amounts that were sold. To date, losses on the portfolio that Credit Suisse sold were about $100 million, he said.
“We feel like in our mortgage business we actually cut back originations quite substantially in 2006,” as the rest of the industry was still growing, Dougan said. “We were very rigorous around due diligence processes, etc., so we think that that is reflected actually in better performance of the portfolios.”