UBS Said to Weigh Court Battle With DOJ Over Mortgage Bond Probe

  • Bank said to consider trial if settlement request is too high
  • Barclays has already been sued in court by Justice Department

UBS Group AG is weighing the option of going to court with the U.S. Justice Department over allegedly deceiving investors who bought mortgage-backed securities, according to three people familiar with the discussions.

While UBS currently isn’t holding formal negotiations with the DOJ and the fact-finding process hasn’t been completed, the company is considering letting the case go to court if a settlement figure exceeds what the bank considers reasonable, said two of the people, who spoke on condition of anonymity because the deliberations are private. The bank has already provisioned $1.4 billion for the probe and other mortgage-related matters.

If UBS chooses not to settle, it would join Barclays Plc in testing the resolve of the Justice Department under President Donald Trump, after the Obama administration extracted almost $60 billion in penalties from U.S. and European lenders. Barclays was sued by the DOJ in December after the bank didn’t agree to a settlement amount it found too high.

The RMBS case is one of the big outstanding legal items for the Swiss bank. Another is a French tax fraud investigation which the bank is pushing to settle for less than 300 million euros ($317 million), people familiar with the matter have told Bloomberg. UBS has paid 300 million euros to resolve a similar matter in Germany. In 2009, the bank paid $780 million to the U.S. to avoid prosecution, admitting it helped thousands of Americans evade taxes.

Civil Case

Lawsuits of this kind are rare for big banks, which typically seek to settle with the U.S. government rather than risk drawn-out litigation and a possible trial.

Because the mortgage-securities case is civil, the risk of losing is less dire than it would be in a criminal matter. A criminal case can bring greater reputational damage and a guilty verdict could force banks to obtain waivers to continue conducting some business in the U.S., according to Elliott Stein, a legal analyst for Bloomberg Intelligence.

UBS is one of just a handful of major banks that have yet to settle with the U.S. government over a years-long probe into the industry’s handling of sales of mortgage-backed securities before the financial crisis. U.S. authorities have already extracted settlements from eight financial institutions led by Bank of America Corp.’s $16.7 billion.

Royal Bank of Scotland Group Plc and HSBC Holdings Plc are also among European banks that have yet to agree to a settlement with U.S. authorities.

— With assistance by Tom Schoenberg, and Greg Farrell

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