UPDATE 3-Banks shiver as UBS swallows $885 mln US fine

Fri Jul 26, 2013 9:00am EDT

* UBS paying $415 mln to Fannie Mae; $470 mln to Freddie Mac

* Settlement raises concerns over exposure of other banks

* European banks could take $11 billion hit - Credit Suisse

* RBS shares down 3 percent on settlement fears

WASHINGTON/LONDON, July 26 (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.


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."

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Comments (3)
TDude wrote:
Isn’t this almost the exact amount of money that the WH is using for the Obamacare Sales Initiative?

Jul 26, 2013 9:56am EDT  --  Report as abuse
pekpek69 wrote:
Another research finding from Chase financial report

Based on these factors, the Firm has recognized a mortgage repurchase liability of $2.8 billion and $3.6 billion as of December 31, 2012 and 2011, respectively. The Firm’s mortgage repurchase liability is intended to cover repurchase losses associated with all loans previously sold in connection with loan sale and securitization transactions with the GSEs, regardless of when those losses occur or how they are ultimately resolved (e.g., repurchase, make-whole payment). While uncertainties continue to exist with respect
to both GSE behavior and the economic environment, the Firm believes that the model inputs and assumptions that it uses to estimate its mortgage repurchase liability are becoming increasingly seasoned and stable. Based on these model inputs, which take into account all available information, and also considering projections regarding future uncertainty, including the GSEs’ current behavior, the Firm has become increasingly confident in its ability to estimate reliably its mortgage repurchase liability. For
these reasons, the Firm believes that its mortgage repurchase liability at December 31, 2012, is sufficient to
cover probable future repurchase losses arising from loan sale and securitization transactions with the GSEs.

This is a lot of money..

Jul 26, 2013 2:51pm EDT  --  Report as abuse
pekpek69 wrote:
In 2008, before the housing market collapsed, a bipartisan promise was made to millions of working families, when President George W. Bush signed the National Housing Trust Fund into law. The fund, capitalized from the operating profits of Fannie Mae and Freddie Mac, was to be a downpayment on affordable apartments, which are desperately needed by the millions of Americans who rent. It looks like the low income got the end of the stick again…..Treasury is pocketing the money from shareholders….

Jul 29, 2013 2:55am EDT  --  Report as abuse
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