Credit Suisse to pay $885 mn to settle mortgage-backed securities claims

Credit Suisse Group AG yesterday agreed to pay $885 million to settle claims by a US regulator over mis-selling private-label mortgage-backed securities (PLS) to Fannie Mae and Freddie Mac prior to the global financial crisis that later went sour.

Under the terms of the agreement with the US Federal Housing Finance Agency (FHFA), Credit Suisse, Switzerland's second-biggest bank, will pay around $234 million to Fannie Mae and around $651 million to Freddie Mac and certain claims against Credit Suisse-related to the securities involved will be released.

This is the ninth settlement that FHFA, which oversees Fannie and Freddie, has announced in relation to the 18 PLS lawsuits it had filed in 2011 over $200 billion in mortgage-backed securities.

The Zurich-based bank said the agreement announced today with FHFA settles claims related to the sale of approximately $16.6 billion of residential mortgage-backed securities between 2005 and 2007.

Credit Suisse also noted that the agreement resolves Credit Suisse's largest mortgage-related investor litigation.

It added that the agreement will result in it taking a 275 million-franc ($311 million) charge on last year's fourth-quarter earnings.

The settlement comes a month after French bank Société Générale agreed to pay $122 million to settle similar allegations by the FHFA.

The FHFA has so far recovered more than $10.1 billion from banks over similar allegations, including from banks like JPMorgan Chase & Co, Citigroup, Deutsche Bank, Wells Fargo & Co, SunTrust, Flagstar PNC, HSBC Bank USA, and Morgan Stanley.

The FHFA has still to recover money from Royal Bank of Scotland and Bank of America.

In 2008 the US Treasury had rescued Fannie and Freddie as mortgage losses mounted.

The two received more than $150 billion in infusions to stay afloat. They have become highly profitable over the past year and are close to having paid as much to the US government in dividends.