Daily Management Review

Credit Suisse was Proposed to Cough up $5 Billion - 7 Billion Penalty by U.S. on Toxic Debt: Reuters


12/20/2016




Credit Suisse was Proposed to Cough up $5 Billion - 7 Billion Penalty by U.S. on Toxic Debt: Reuters
Reuters reported that to settle a probe over its sale of toxic mortgage securities in the run-up to the 2008 financial crisis, the U.S. Department of Justice has asked Credit Suisse to pay between $5 billion and $7 billion.
 
Reuters quoted a source with knowledge of the matter saying that the bank has resisted settling for that amount.
 
The size of the suggested settlement explains why Credit Suisse management has been seeking a smaller penalty and indicates that the cost to the bank may be higher than analysts had expected, Reuters said.
 
"Credit Suisse is confident of reaching a better solution," said a second person according to Reuters. U.S. legal authorities could sue the bank, prolonging the uncertainty should talks break down.
 
U.S. Attorney General Loretta Lynch last week met with Credit Suisse chief executive Tidjane Thiam in a sign that negotiations may be reaching their final stages, reported the news agency. A potential resolution could come as early as this week.
 
Credit Suisse and the Department of Justice declined to comment.
 
Credit Suisse was engaged in a practice that helped cause the worst economic crisis since the 1930s where investors are mislead about the risks whole selling mortgage and the penalty stems from a 2012 initiative launched by U.S. President Barack Obama to hold banks accountable for such actions.
 
European lenders, many of which remain fragile, with scant capital, in the wake of the financial crash, are set to face another setback by the penalties, which for U.S. banks reached $46 billion.
 
The focus has turned to Europe's Deutsche Bank, Royal Bank of Scotland, Credit Suisse, Barclays, UBS and HSBC after record settlements were reached with U.S. banks such as Bank of America and JPMorgan.
 
Deutsche stocks plummeted and raised fears Credit Suisse could also face a stiffer penalty as news in September filtered out that the Justice Department made an initial demand of the German lender of $14 billion to settle its case.
 
JP Morgan analysts estimated Credit Suisse's fine at around $2 billion just prior to Deutsche confirming that the Department of Justice was seeking $14 billion.
 
Sources reportedly told Reuters that this week, Deutsche Bank could agree its penalty over the sale of toxic mortgage debt. It expects to pay materially less than $14 billion, the bank has said
 
At the end of 2015, 1.605 billion Swiss francs ($1.56 billion) was the total litigation provisions for Credit Suisse. Primarily in connection with mortgage-related matters, it had upped litigation provisions by 357 million francs, the bank had said in November.
 
Credit Suisse is defending itself against lawsuits by the New York and New Jersey attorneys general over similar claims involving billions of dollars of investor losses in addition to the Justice Department probe.
 
It will likely settle with the states as well if Credit Suisse reaches a settlement with federal authorities.
 
the banks' efforts to reach settlements could get complicated as key government players involved in the negotiations would change after President-elect Donald Trump takes office on Jan. 20.
 
(Source:www.reuters.com) 






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