Credit Suisse Group AG (NYSE:CS) will pay $651 million to Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and $234 million to Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) to settle lawsuits with the Federal Housing Finance Agency over $16.6 billion in mortgages sold to the government sponsored enterprises (GSE) ahead of the financial crisis, report Elena Logutenkova and Jeffrey Vögeli for Bloomberg. Credit Suisse will post $312 million worth of the settlement after taxes on its 4Q13 earnings for a revised loss of about $9 million for the quarter.
Credit Suisse down 1.5%
Credit Suisse Group AG (NYSE:CS) stock is down 1.5% today, but it’s not obvious that this was caused by the announcement of the settlement, which is arguably good news for the bank in the long run. The FHFA has reached comparable settlements with JPMorgan Chase & Co. (NYSE:JPM), UBS AG (NYSE:UBS), and others, so no one really expected Credit Suisse to end the lawsuit without paying a sizable settlement as well. At least now the final dollar amount is known and the bank can move on to other legal challenges that it’s currently facing.
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Credit Suisse Group AG (NYSE:CS), along with Bank of America and Citigroup, is being investigated for allegedly manipulating the LIBOR interest rate, and faces continuing legal trouble for allegedly helping US citizens evade taxes. It also has a number of other lawsuits revolving around the sale of mortgage-backed securities.
New Jersey, mortgage insurers among other suing over MBS
New Jersey sued Credit Suisse Group AG (NYSE:CS) for securities fraud late last year, adding its name to the list of entities besides the FHFA that have accused the Swiss bank of misrepresenting the securities it sold. New Jersey also alleges that Credit Suisse has received tens of millions in reimbursements from loan originators because of the delinquent loans, but has refused to pass them on to the groups that ultimately bought the mortgages.
Last month, Credit Suisse Group AG (NYSE:CS) finally set aside CHF339 million (US$378 million) for litigation costs to deal with mortgage-putback liabilities with two private mortgage insurers, MBIA Inc. (NYSE:MBI) and Assured Guaranty Ltd. (NYSE:AGO). The insurers have expressed that they were surprised that Credit Suisse didn’t set aside the money sooner (or that its auditors didn’t insist) and that they hadn’t been able to get a meeting with the bank even when they refiled the complaint to include fraud allegations.
With so much litigation on its plate, even a high settlement cost is likely worth getting the FHFA off their plate so that Credit Suisse Group AG (NYSE:CS) can deal with the ongoing fallout from sub-prime crisis.