Credit Suisse settles US litigation with $600 million payout

Credit Suisse as seen in New York Keystone / Alessandro Della Valle

Swiss bank Credit Suisse has paid out $600 million (CHF534 million) to settle a legal dispute in the United States relating to the sale of mortgage backed financial products.

Switzerland’s second largest bank said it was satisfied with the settlement having previously put aside $680 million to cover potential damages.

The case dates back to 2009 when New York-based municipal bond insurer MBIA Inc sued Credit Suisse over hundreds of millions of dollars it paid out to compensate investors after thousands of property mortgages failed in the United States. MBIA had guaranteed residential mortgage backed securities (RMBS) issued by Credit Suisse before the 2008 financial crash.

An earlier US court ruling had found the bank at fault for misrepresenting the quality of the mortgage loans underlying the financial products that MBIA was insuring. The two parties have now reached agreement on how much compensation the bank should pay.  

MBIA announcedExternal link on Thursday that its unit MBIA Insurance Corp had entered “an agreement to settle the litigation it filed in 2009 against Credit Suisse Securities (USA) and certain affiliated entities”.

“We are pleased to have resolved this legacy matter,” a Credit Suisse spokeswoman said in a separate emailed statement to Reuters.

“The settlement amount of $600 million is substantially less than our earlier guidance of up to approximately $680 million and has been fully provisioned for in our 4Q 2020 results, due to be announced on 18th February.”

The widespread issuance and trading of mortgage-backed securities by many financial institutions resulted in the 2007/2008 market crash. Credit Suisse is one of many banks worldwide that have been forced to pay damages relating to the issue.