Banking & Finance

Swiss bank UBS says it expects to be sued by US Justice Department over 2008 mortgage securities crisis

  • Bank originated US$1.5 billion of US residential mortgages and lost more than US$45 billion in the housing market collapse
PUBLISHED : Thursday, 08 November, 2018, 2:05pm
UPDATED : Thursday, 08 November, 2018, 2:24pm

UBS, Switzerland’s largest bank, said it expects to be sued by the US Department of Justice as early as Thursday, on civil charges related to the sale of mortgage-backed securities in the run-up to the 2008 global financial crisis, according to a company statement.

The bank said the claims were not supported by facts or the law, and that it would contest any such complaint “vigorously”.

The US Department of Justice did not immediately respond to a request for comment.

UBS said the Justice Department advised the bank it intended to file the lawsuit. It anticipates the Justice Department will seek unspecified monetary penalties stemming from mortgage securities that date back to 2006 and 2007.

The lawsuit against UBS, a small originator of US residential mortgages at the time, is among the last actions over misconduct in the sale and pooling of mortgage securities that helped to cause the financial crisis.

In recent years, the Justice Department has settled similar claims with Citigroup, Deutsche Bank, JPMorgan Chase & Co, Credit Suisse, Morgan Stanley, Goldman Sachs, Bank of America and Barclays.

Barclays settled for US$2 billion in March after resisting a penalty the US government sought near the end of the Obama Administration in 2016. The Justice Department had sought a much higher fine at the time and, when the two sides could not come to terms, the department filed a lawsuit.

More recently, HSBC Holdings agreed to pay US$765 million in October to settle with the Justice Department over its sale of defective mortgage securities before the crisis, while major player Royal Bank of Scotland reached a US$4.9 billion deal in May.

After the crisis, banks were accused of deceiving investors about the quality of loans underlying the mortgage-backed securities they pooled and sold, with loans made to borrowers with no ability to repay them and based on inflated home appraisals.

UBS, which originated US$1.5 billion of US residential mortgages in a US$5 trillion market, lost more than US$45 billion when the housing market collapsed, a person familiar with the matter told Reuters.