Credit Suisse Settles With DOJ For $5.3 Billion; Will Pay $2.5 Billion Civil Penalty

Shortly after last night’s news that Deutsche Bank had settled with the DOJ for $7.2 billion, of which it would pay $3.1 billion in a civil penalty, far lower than the $14 billion number initially speculated (the stock popped as much as 4% before settling just over 2% higher currently), Credit Suisse likewise closed the books on its pre-crisis RMBS fraud when the largest Swiss bank agreed to pay $5.28 billion to resolve a U.S. investigation into its business in mortgage-backed securities. Credit Suisse will pay a $2.48 billion civil penalty and $2.8 billion in relief for homeowners and communities hit by the collapse in home prices, it said in a statement Friday. Credit Suisse will take a pretax charge of about $2 billion in addition to its existing reserves during the fourth quarter.

The two settlements follow a surprise announcement by the DOJ which said on Thursday it sued Barclays Plc for fraud over its sale of mortgage bonds after the bank balked at paying the amount the government sought in negotiations. The lawsuit announced on Thursday is rare for big banks, which typically settle with the government rather than risk drawn-out litigation and a possible trial.

“With this settlement, the largest remaining major uncertainty is now eliminated” for Credit Suisse, Peter Casanova, an analyst at Kepler Cheuvreux told Bloomberg. “This is good news.”

The Obama administration is pressing to wrap up investigations of Wall Street firms for creating and selling the subprime mortgage bonds that fueled the 2008 financial crisis. Before the two deals on Friday, authorities had already extracted more than $46 billion in fines from six U.S. financial institutions over their dealings in mortgage-backed securities. Bank of America Corp., which had the largest such settlement, agreed to pay $16.7 billion over bonds that were worth four times those of Deutsche Bank. Meanwhile, Deutsche Bank said that the fine will cut its pretax profit by $1.2 billion this quarter as the firm taps existing legal reserves to blunt much of that cost.

Credit Suisse said it would pay the consumer relief over five years following the settlement. The bank had set aside about 2.1 billion francs ($2.1 billion) in general litigation provisions by the end of the third quarter.

Chief Executive Officer Tidjane Thiam tapped shareholders for 6 billion Swiss francs in late 2015 while shifting the company’s focus away from capital-heavy investment banking toward wealth management. Thiam has updated investors twice on his plan, which includes a partial initial public offering of its Swiss unit in late 2017. In December, the former insurance executive pledged more cost cuts and lowered targets for the international wealth management and its Asian unit.

As Bloomberg adds, the Swiss bank remains under Justice Department scrutiny over its handling of U.S. clients in Israel. The department fined Credit Suisse $2.6 billion in 2014 for helping Americans dodge taxes in Switzerland. The bank is also a target of several antitrust cases in the U.S., including class actions related to foreign-exchange rates and interest-rate swaps.

At least three other European banks remain under investigation over the role of their mortgage-backed securities business: UBS, HSBC and Royal Bank of Scotland. In addition to Bank of America, U.S. banks that have settled include Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley. Wells Fargo & Co. and Moody’s Corp. have disclosed U.S. investigations into their mortgage-backed securities dealings and have said they’re cooperating.