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

WASHINGTON/LONDON Fri Jul 26, 2013 9:01am EDT

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

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

Credit: Reuters/Arnd Wiegmann

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.

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 euros for litigation costs after topping that up in March by an additional 600 million euros, 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."

(Reporting by Margaret Chadbourn in Washington, Steve Slater and Matt Scuffham in London and Philipp Halstrick in Frankfurt; Editing by Jackie Frank and Patrick Graham)

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (11)
reality-again wrote:
Banks may shiver but bankers sigh in relief because no banker got jailed for these crimes.
The system seems to be rigged in a way that it offers de facto immunity to white collar criminals who happen to be part of big, powerful and rich financial institutions.

Jul 26, 2013 7:30am EDT  --  Report as abuse
tmc wrote:
Shiver? No, they are relieved. Statute of limitations has in most cases run out, and their lobbing has been successful for the most part, and no admittance of guilt by anyone for anything. Only a couple of very small fish and pesky hedge funders had to be sacrificed. It does surprise me how the media has been, let’s say, easy on them too. Loaded products, money laundering, rate trigging, all now easily justified and safe transactions in their eyes.
Use cash, starve a bankster!

Jul 26, 2013 8:06am EDT  --  Report as abuse
Vuenbelvue wrote:
So true tmc, so true. It is also so normal that they agree to pay fines upwards toward a billion USD and their stock is temporarily affected at the most. Seems to be unlimited earnings for them. Use cash, starve a bankster is catchy but doesn’t worry them. It isn’t even a white collar crime anymore and all the principals at the time are retired with their wealth or moved on to another corporation after the snail’s pace of the prosecution. Funny article.

Jul 26, 2013 8:45am EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.