UBS to Pay US $1.4 Bn to Settle 2008 Financial Crisis Fraud Case

The Swiss banking giant UBS reached a settlement with U.S. federal authorities Monday to pay just over US$1.4 billion in settlement fees, a penalty brought about by the bank’s misconduct over its residential mortgage-backed securities (RMBS) in the build up to the 2008 financial crisis.

UBS HQ ZurichUBS Headquarters in Zurich, Switzerland. (Photo: Ank Kumar, Wikimedia, License)As outlined in the settlement, UBS will pay a fine of $1.435 billion to resolve the last of the cases opened by the Justice Department into predatory RMBS products that misled mortgage loan applicants in 2006 and 2007. The fallout from these mortgage products ultimately played a significant role in the collapse of the U.S. housing market one year later.

“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,” said Associate Attorney General Vanita Gupta.

Since 2012, financial crime experts in the Justice Department had built a case arguing that “UBS defrauded investors in connection with the sale of 40 RMBS” in the years leading up to the housing market’s collapse.

This was done, investigators said, despite UBS knowing that a “significant numbers of the loans backing the RMBS did not comply with loan underwriting guidelines,” that “the property values associated with a significant number of the securitized loans were unsupported,” and that a “significant numbers of the loans had not been originated in accordance with consumer protection laws.”

The bank was reportedly aware of the nature of these fraudulent submissions, based on its own due diligence reports into the underlying loans found within the RMBS packages.

Ultimately, the resulting defaults from many of these loans led to the 40 RMBS packages sustaining substantial losses, thereby plunging the U.S. housing market, and the global economy, into chaos.

With the agreed upon settlement from UBS, the Justice Department has now “collected more than $36 billion in civil penalties from 18 major domestic and foreign banks, originators, and rating agencies for their alleged conduct” in connection with the failed mortgages that resulted in the 2008 financial crisis.

Other banks that have agreed to pay civil penalties to the U.S. include Credit Suisse and Deutsche Bank, alongside no less than 16 other financial institutions.

In an official statement, the Swiss banking giant said that the settlement pertained to a “legacy matter” and that it will pay the full fee “to resolve all civil claims by the DOJ in connection with UBS’s legacy RMBS business in the US.”

The terms and conditions outlined in the settlement give UBS 15 business days to pay the entire $1.435 billion amount once instructed to by the U.S. Attorney’s Office. Compliance will result in the complaint’s dismissal.