Swiss bank Credit Suisse has reached a settlement with the American Securities and Exchange Commission to drop civil charges of selling risky mortgage bonds to investors that the banks knew could fail ahead of the 2008 financial crisis.
US financial institution JPMorgan Chase, facing similar charges, and Credit Suisse agreed to pay a combined $417 million (SFr394 million) to settle.
The SEC says JP Morgan did not tell investors that mortgages tied to the bonds were delinquent. And both banks failed to properly disclose practices that allowed them to profit while investors lost millions.
JPMorgan is paying $296.9 million, with Credit Suisse footing the rest, $120 million. The banks agreed to settle the charges without admitting or denying wrongdoing. The money will go to the investors, the SEC said on Friday.
According to the commission, Credit Suisse failed to disclose arranged discounted cash settlements with loan originators on problem loans, which netted the bank $55.7 million.
The Swiss bank also misled investors by falsely claiming when it would buy back mortgage loans in two offerings in which borrowers had defaulted on their initial payments, and that „all first payment default risk“ had been removed, the SEC added.
In a statement, Credit Suisse said it neither admitted nor denied the allegations, but that it was pleased that it was able to resolve these investigations with the SEC..
Investor losses
It is the latest case against major financial firms for their conduct in the years preceding the 2008 crisis. When the real estate bubble burst, home values plunged and millions of people lost their homes. Investors who bought the securities backed by mortgages lost billions.
Robert Khuzami, the agency’s enforcement director, said in a statement that inaccurate statements by banks in packaging and selling mortgage bonds „contributed greatly to the tremendous losses suffered by investors once the U.S. housing market collapsed.“
These are also the latest SEC settlements not to punish individuals. In July, the commission lost its first financial crisis-related trial against an individual when a Manhattan federal jury cleared former Citigroup mid-tier executive of wrongdoing in the sale of a mortgage bond transaction.
On a conference call with reporters, Khuzami said it is hard to bring cases against individuals over „structured“ financial transactions because different people work on different aspects, making it hard to pin blame.
„We by no means are shying away from charging individuals where we find can identify them as being responsible,“ he said.
JPMorgan, the largest US bank by assets, previously settled similar charges over mortgage securities with the SEC in June 2011 and agreed to pay $153.6 million.
Another financial institution, Goldman Sachs agreed in July 2010 to pay $550 million to settle charges of misleading buyers of complex mortgage investment.