The Credit Suisse Group (NYSE: CS) has ended up paying a whopping $400 million dollars to put to rest claims pinpointing its mortgage securities as the primary cause of the failure of three federal credit unions. The Swiss bank has been facing some lawsuits filed against it by the National Credit Union Administration, which also has pending cases against others. In total the Administration has 20 such law suits and this was the 19th, according to official sources.
The Swiss bank was penalized for having sold mortgages that are now being described as 'toxic'. Credit Suisse has been found to carry responsibility for underwriting or selling the poor quality securities that led to the failure of five credit unions in all in the period between 2009 and 2010. With this payment by Credit Suisse, a total of over $5 billion has been recovered so far from these institutions.
Proceeds to be used towards claims against unions
As expected, the payment by Credit Suisse as well as other financial institutions found guilty, will be used towards paying off claims made by affected parties against the five credit unions. These include Members United Corporate, Constitution Corporate, U.S. Central, Southwest Corporate and Western Corporate credit unions. In Credit Suisse's case, the claim was primarily for the failure of Western Corporate and U.S. Central after it was found that the bank has misled them about the risk associated with residential mortgage backed securities to the tune of some $715 million. These securities were purchased between the years of 2005 and 2007 by the credit unions.
Interestingly, Credit Suisse has also shelled out some $50 million dollars in another settlement that was solidified in mid- 2016 towards different lawsuits by the same credit unions administration.
Credit Suisse does not accept fault
The lawsuits were brought against the bank for its negligence in ensuring that its clients were fully aware of the risks associated with the securities it was pushing. However the bank itself has not accepted that it was actually at fault here. Bank officials are calling the settlement a legacy matter that has been resolved. Spokespersons have clarified that the cash needed to make the settlement has already been earmarked by the bank and will be set aside in the first quarter of the year itself. Readers will also remember that UBS, another Swiss financial entity, faced a similar situation and recently paid $445 million for promoting toxic mortgages too.