By John Letzing
ZURICH-- Credit Suisse Group AG has become the latest bank to
settle with the Federal Housing Finance Agency over allegations it
misrepresented mortgage-backed securities sold before the financial
crisis, paying $885 million and removing some of the legal cloud
that hangs over the Swiss lender in the U.S.
Zurich-based Credit Suisse said in a statement Friday that the
settlement covers claims in two lawsuits filed by the FHFA alleging
that it misled Fannie Mae and Freddie Mac about the quality of
loans underlying some $16.6 billion in mortgage bonds sold to the
government-controlled mortgage-finance companies between 2005 and
2007.
The FHFA controls Fannie and Freddie. Credit Suisse didn't admit
to any liability or wrongdoing in the settlement.
Because the settlement agreement was reached before the company
filed financial results for last year, Credit Suisse said it would
take a related charge of 275 million Swiss francs ($312 million)
for 2013. Accounting for the charge, the bank now is reporting a
net loss of eight million francs for the fourth quarter of last
year. Credit Suisse previously reported a profit of 267 million
francs for the period. Profit for the full year is cut to nearly
2.8 billion francs from the previously reported 3 billion
francs.
The FHFA said in a statement that the settlement resolves all
claims against Credit Suisse in the matter. The bank will pay $234
million to Fannie and $651 million to Freddie, the regulator
said.
Credit Suisse's long anticipated settlement with the FHFA
removes some of the legal uncertainty the Swiss banking giant has
faced recently in the U.S. Switzerland's second-biggest bank has
yet to settle a continuing investigation by the U.S. Justice
Department into assistance it may have provided to Americans
seeking to hide money from the Internal Revenue Service using Swiss
accounts.
Credit Suisse, which disclosed the Justice Department probe in
2011, is one of about a dozen Swiss banks under investigation by
U.S. authorities for allegedly aiding American tax evasion. The
bank is expected to eventually pay more to settle the matter than
the $780 million agreed to by UBS in 2009.
Last month, top Credit Suisse executives including Chief
Executive Brady Dougan were called to testify at a Senate hearing
about the bank's role in helping Americans hide undeclared assets.
At that hearing, lawmakers expressed frustration that Switzerland's
strict bank secrecy laws had prevented the Justice Department from
identifying a significant portion of the tens of thousands of
Americans who have held Swiss accounts with Credit Suisse.
Mr. Dougan told lawmakers at the hearing that misconduct at the
bank had been limited to a small group of employees, who went out
of their way to help American clients keep their assets hidden from
the IRS.
Alongside the tax-evasion issue, Mr. Dougan has been regularly
peppered with questions from the media about when Credit Suisse
would settle its litigation with the FHFA. Credit Suisse's
Zurich-based rival UBS disclosed a settlement with the FHFA over
the matter roughly eight months ago.
The FHFA filed lawsuits in 2011 against 18 banks that sold more
than $200 billion in bonds to Fannie and Freddie, alleging the risk
characteristics of the mortgages underlying those investments were
misrepresented. In its statement on Friday, the FHFA said it has so
far announced nine settlements related to that litigation.
The FHFA has said UBS's settlement, disclosed last July, was
also $885 million. Other banks that have settled with the FHFA over
the matter include Citigroup Inc., which paid $250 million,
according to the FHFA, Deutsche Bank AG, which paid $1.9 billion,
and J.P. Morgan Chase & Co., which paid $4 billion.
The FHFA reached a 10th settlement worth $335 million with Wells
Fargo & Co., which it never sued.
In 2008, after the massive U.S. mortgage boom had turned into a
spiraling financial crisis, the U.S. Treasury rescued Fannie and
Freddie with more than $150 billion in infusions. The
mortgage-finance companies don't make loans directly, but support
housing markets by buying mortgages from banks and then selling
them to investors as securities. During the boom, Fannie and
Freddie had purchased privately issued securities as
investments.
Nick Timiraos contributed to this article.
Write to John Letzing at john.letzing@wsj.com