Exclusive: U.S. proposed $5 billion - 7 billion penalty on Credit Suisse on toxic debt - source

Mon Dec 19, 2016 5:41pm EST
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By Joshua Franklin, Oliver Hirt and Karen Freifeld

ZURICH/NEW YORK (Reuters) - The U.S. Department of Justice has asked Credit Suisse to pay between $5 billion and $7 billion to settle a probe over its sale of toxic mortgage securities in the run-up to the 2008 financial crisis, a source with knowledge of the matter said, but the bank has resisted settling for that amount.

The size of the suggested settlement indicates that the cost to the bank may be higher than analysts had expected and explains why Credit Suisse management, according to a second source, has been seeking a smaller penalty.

"Credit Suisse is confident of reaching a better solution," said the second person. Should talks break down, U.S. legal authorities could sue the bank, prolonging the uncertainty.

In a sign that negotiations may be reaching their final stages, U.S. Attorney General Loretta Lynch last week met with Credit Suisse chief executive Tidjane Thiam, another person familiar with the matter said.

A potential resolution could come as early as this week.

The sources did not want to be identified because the negotiations are not public.

Credit Suisse and the Department of Justice declined to comment.

The penalty stems from a 2012 initiative launched by U.S. President Barack Obama to hold banks accountable for selling mortgage debt while misleading investors about the risks, a practice that helped cause the worst economic crisis since the 1930s.   Continued...

The Credit Suisse logo is seen at the headquarters in downtown Milan, Italy, March 9, 2016.    REUTERS/Stefano Rellandini/File Photo - RTX2VAIF