Swiss-based UBS has agreed to pay around $1.4 billion in penalties to settle a civil action filed in November 2018 alleging misconduct and fraud in the selling of residential mortgage-backed securities relating to the global financial crisis, the Department of Justice announced Monday.
The settlement resolves the last such lawsuit brought by the DOJ related to its investigation into the role of banks and other financial institutions in issuing and creating RMBS that fueled the 2008 financial crisis.
The complaint alleged that the Swiss lender deliberately made “false and misleading statements” to buyers of these securities and sold 40 RMBS during that time.
With the UBS announcement, the DOJ has recovered around $36 billion in civil penalties concerning the conduct that led to the financial crisis. There are 18 financial institutions, domestic and foreign banks, originators, and rating agencies who have settled with the DOJ over mortgage-backed security issues, including Bank of America, Citigroup, Goldman Sachs, JPMorgan, HSBC, Wells Fargo, Moody’s and Morgan Stanley.
“In the wake of the 2008 financial crisis, people all across the country experienced financial ruin and emotional devastation, and many are still recovering nearly 15 years later,” Vanita Gupta, associate attorney general, said in a statement Monday. “As this settlement demonstrates, the department and our partner agencies remain committed to holding accountable those who break the law and undermine the well-being of American families.”
UBS’ settlement is roughly the same as the value of the residential mortgage it originated between 2005 and 2007 — the year it stopped issuing residential mortgage-backed securities, according to CNBC. The lender originated $1.5 billion in residential mortgage-related assets during those three years. UBS challenged the allegations in 2018, saying the DOJ’s claims were not supported by facts or law and that it would contest the complaint “vigorously” for its shareholders.
“The vast majority of loans underlying the 40 RMBS listed in the complaint were originated by other financial institutions, many of which issued their own RMBS,” UBS had said at the time.
Prior to the recession in 2008, investment banks packaged, securitized and sold bundles of mortgages to institutional buyers, which were rated and graded according to quality. But these mortgages were less high quality than the ratings claimed. Like other banks who settled with the DOJ, UBS was aware of the risks related to the mortgage-backed securities, and that they did not comply with the underwriting standards, CNBC reported.
Prosecutors alleged that UBS sold the products for financial gain despite knowing the problematic issues with the products, CNBC noted.
However, UBS claimed it had “fulfilled its disclosure obligations to sophisticated RMBS investors.”
Credit Suisse, the now defunct Swiss bank which UBS bought for $3.25 billion, also settled with the DOJ over its misconduct in the MBS offerings.
“This settlement represents accountability for those entities and individuals who mistakenly believed themselves to be above the law,” U.S. Attorney Ryan Buchanan said in a statement. “UBS’ conduct, in this case played a significant role in causing a financial crisis that harmed millions of Americans. The scope of this settlement should serve as a warning to other financial institutions – both large and small – of the significant penalties that can result when corporations misrepresent vital information to investors and undermine trust in our public markets.”