Bank Stocks Shudder on News of UBS' $885M Settlement

ubs fhfa mortgages housing bubble fine
Steffen Schmidt, Keystone/AP
WASHINGTON and LONDON -- UBS will pay $885 million in a settlement with a U.S. regulator over allegations the Swiss bank misrepresented mortgage-backed bonds during the housing bubble, paving the way for billions more to be paid by other banks.

European and U.S. lenders such as Credit Suisse and Deutsche Bank have set aside money to cover the cost of any losses arising from the dispute with the Federal Housing Finance Agency but estimates vary widely.

Shares in Royal Bank of Scotland (RBS), which had risen by a quarter since July 3 having slumped following the ousting of chief executive Stephen Hester in June, dropped more than 3 percent Friday after the UBS settlement was revealed.

The FHFA said late Thursday that UBS (UBS) will pay $415 million and $470 million respectively to government-sponsored housing enterprises Fannie Mae and Freddie Mac to resolve claims related to securities sold to the companies between 2004 and 2007.

UBS is just one of 18 banks the FHFA pursued in 2011 for allegedly misrepresenting the quality of the collateral backing securities during the run-up to the financial crisis.

The Swiss bank is the third to settle, after Citigroup (C) and General Electric (GE) did so for undisclosed sums. UBS said Monday that its second-quarter profit beat forecasts even after the settlement, which it said then had been agreed in principle without specifying the exact amount involved.

Litigation

The FHFA said it "remains committed to satisfactorily resolving the remaining suits as well" and the deal may lay down a marker for how much it could cost rival banks.

Fears it will face a hefty settlement added to uncertainty around RBS, which is striving to attract a replacement for Hester while the government conducts a review into whether it should be broken up.

The bank has already paid out $612 million to settle separate allegations that it manipulated benchmark interest rates and the government is anxious that the lender gets back on track so it can start to offload its 80 percent shareholding.

Ronnie Chopra, head of strategy at TradeNext, said fears RBS could face a multibillion-dollar payment in the U.S. "puts more negativity on the bank and highlights concerns regarding the finances of the behemoth."


Analysts at Credit Suisse earlier this year said European banks could take an $11 billion hit from a raft of mortgage-related litigation costs in the United States.

They estimated RBS alone could face an FHFA litigation loss of $1.6 billion, Barclays a $1.1 billion loss and HSBC could take a $900 million loss.

But another London-based analyst, Joseph Dickerson at investment bank Jefferies, said he expected RBS's losses to be "sub-$1 billion."

Other banks have acknowledged they could incur losses from the suits but few have said how much it could cost.

Barclays said in its last annual report if it lost the cases against the FHFA and other civil actions it could incur a loss of up to the outstanding amount of the RMBS at the time of judgment and some additional interest and costs, less the market value of the RMBS.

It said the outstanding amount was $2.7 billion at the end of 2012, and estimated the market value was $1.6 billion.

Deutsche Bank has set aside €2.4 billion for litigation costs after topping that up in March by an additional €600 million, mainly related to lawsuits over its role in selling bonds backed by U.S. sub-prime mortgages.

HSBC said in its annual report it was unable to estimate reliably the financial effect of any action or litigation, but any claims "could be significant."



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bobcatlew

If the biggies fail, their people will find work again. It's really the politicians that are in jitters.

July 27 2013 at 12:00 AM Report abuse rate up rate down Reply
bobcatlew

Yeah? Maybe the big behemoths can be broken up the way Ma Bell once was and return to doing things on a smaller scale.

July 26 2013 at 11:57 PM Report abuse +2 rate up rate down Reply
AL CONFER

I have to agree that the amount is mere chump change, but think about this, the taxpayers were forced to bail these same banks out, so, does that mean we get our money back? Not a chance in hell. It's truly amazing that none of thes banksters are or will ever go to jail, lose all their lifes savings, the selling of their homes, and forced to live like those of us that got screwed over.

July 26 2013 at 10:46 PM Report abuse +4 rate up rate down Reply
Warrior

This is mere chump change, designed to appease US citizens by making it look like the government is going through the motions of fighting corruption by the Wall Street good old boy network. Typical Americans are not so naive; so, why does the government waste its time bragging about this, as if it's some kind of momentous accomplishment? It's worse than a bad joke. It's an insult to our intelligence and our principles.

July 26 2013 at 9:41 PM Report abuse +4 rate up rate down Reply
k4jlp

Pocket change...now about bringing back Glas-Stegle, when can we expect that?

July 26 2013 at 6:19 PM Report abuse +6 rate up rate down Reply
roperbingobabe

Along with a fine, make them buy those bonds back.

July 26 2013 at 6:13 PM Report abuse +6 rate up rate down Reply
ejorillion

not a big enough fine. where is the prison time

July 26 2013 at 5:17 PM Report abuse +7 rate up rate down Reply
1 reply to ejorillion's comment
F4flyr

agreed...are you familiar with 'Gramm-Leach-Bliley'?...Texas' Phil Gramm jammed it thru on the friday before xmas recess, 1999, as Clinton and Congress wanted to go home...what could be perilous about a 'Banking Modernization Bill'?...guess who got a seat at the head table of UBS right after this?...Phil Gramm, another weaselly lawmaker in the model of Mitch McConnell...sleaziness pervades our Congress and we need to do something about it.

July 26 2013 at 5:50 PM Report abuse +4 rate up rate down Reply
3 replies to F4flyr's comment
petepar1

Not enough $ from the theifs how about some jail time in the big house

July 26 2013 at 4:55 PM Report abuse +3 rate up rate down Reply
socalflash

Big rewards with little or no risk...even when caught. Just another step toward a world of haves and havenots. Big business will control the world to an increasing degree as time goes by. Corporate paramilitarys, bought and paid for politicians, greed and corruption worldwide and nothing can stop it. (doom and gloom). No hope. Need to find a tall bridge.

July 26 2013 at 4:33 PM Report abuse +7 rate up rate down Reply
1 reply to socalflash's comment
roperbingobabe

That is the republican dream.

July 26 2013 at 6:18 PM Report abuse +5 rate up rate down Reply
shamrocksare1

You the banks shall perform shady business practices and lie to the public, government, and investors over and over again destroying the housing market, descimating home values, and contributing to a global economic recession. We the government shall fine you 1 % of what you profited during this time, and shall give nothing to those who had their lives ruined. And the world keeps spinning...

July 26 2013 at 3:54 PM Report abuse +7 rate up rate down Reply