Credit Suisse recently settled with the Federal Housing Finance Agency (FHFA) over the allegations of misrepresentations in the mortgage-backed securities sold in the time leading up to the financial meltdown. A total of $885 million will be paid in this settlement.
The settlement covers claims in two lawsuits filed by the FHFA charging that Credit Suisse misled Fannie Mae and Freddie Mac regarding the quality of loans underlying approximately $16.5 billion in mortgage bonds sold to the government mortgage finance companies between 2005 and 2007. Fannie and Freddie are controlled by the FHFA.
The FHFA said that the settlement resolves all claims against Credit Suisse. The bank will pay $234 million to Fannie and $651 million to Freddie. The FHFA filed lawsuits in 2011 against 18 banks that sold more than $200 billion in bonds to Fannie and Freddie alleging misrepresentations regarding the risks of the bonds. Thus far, nine settlements have been reached. Other large settlements include UBS ($885 million), Citigroup Inc. ($250 million), Deutsche Bank AG ($1.9 billion), and J.P. Morgan Chase ($4 billion).
During the mortgage crisis, U.S. Treasury rescued Fannie and Freddie with over $150 billion in assistance. Fannie and Freddie are not direct lenders but purchase mortgages from banks and then sell them to investors and securities. Many of the purchased mortgages were toxic with fraudulent loans that ultimately led to the mortgage debacle.
Credit Suisse is also a target of the U.S. authorities for assisting Americans in tax evasion. Leading executives of the company were called recently to testify at a senate hearing about the bank’s role in helping Americans hide undeclared assets. Many of the tax hiding allegations center around the Swiss strict laws regarding bank secrecy. This has prevented the Justice Department from identifying tens of thousands of Americans who hold Swiss accounts with Credit Suisse.