Banks shiver as UBS swallows $885 million U.S. fine

Fri Jul 26, 2013 9:01am EDT
 
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WASHINGTON/LONDON (Reuters) - 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, which had risen by a quarter since July 3 having slumped following the ousting of chief executive Stephen Hester in June, dropped over three percent on Friday after the UBS settlement was revealed.

The FHFA said late on Thursday 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 and General Electric did so for undisclosed sums. UBS said on 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.   Continued...

 
The logo of Swiss bank UBS is seen on an office building in Zurich July 22, 2013. REUTERS/Arnd Wiegmann