UBS to pay $1.4 billion over mortgage-backed securities fraud

  • Federal prosecutors said UBS will pay a $1.4 billion settlement over “legacy” misconduct related to the bank’s offering and sale of residential mortgage-backed securities.
  • It’s the last case prosecutors have brought about major bank misconduct.
  • The DOJ claimed that the banks knew the mortgages under the securities were problematic or non-compliant but sold them anyway.

A general view of the UBS building in Manhattan, New York, June 5, 2023.

Eduardo Munoz Alvarez | Watch press | Corbis News | Getty Images

Swiss bank UBS has agreed to pay $1.4 billion in combined civil fines for fraud and misconduct in its offering of mortgage-backed securities dating back to the global financial crisis, federal prosecutors say. announce Monday.

The bank, in its own statement Monday, described The settlement is described as addressing a “legacy matter” dating from 2006 to 2007, which led to the financial crisis.

The settlement concludes the final case brought by the US Department of Justice against several of the largest financial institutions over misleading statements made to buyers of those mortgage-backed securities. Total recoveries in the cases now total $36 billion, according to the Justice Department.

In the years leading up to the financial crisis, investment banks packaged, securitized, and sold packages of mortgages to institutional buyers. These securities are rated and graded according to quality, with different “traces” of mortgages that hypothetically protect against the risk of default fully.

But unbeknownst to the buyers, those mortgages weren’t as high quality as their ratings suggested. UBS, similar to other banks that had settled with the DOJ, was aware that mortgages under mortgage-backed securities did not meet underwriting standards.

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UBS conducted “extensive” due diligence on the underlying loans before it created and sold the securities to its clients, the plaintiffs alleged, and despite knowing important issues with the products, continued to sell them to financial success.

The DOJ has secured settlements with 18 other financial institutions over mortgage-backed security issues, including Bank of America, Citigroup, General Electric, Goldman Sachs, JPMorgan and Wells Fargo.

Credit Suisse, the now-defunct Swiss bank now owned by UBS, has also settled with the Ministry of Justice over misconduct related to Mohammed bin Salman’s bids.

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