This credit-crisis legacy issue sits among the raft of allegations of fraud and other misconduct surrounding Credit Suisse’s descent into cultural failure, which UBS management claims it will now be rooting out.
Credit Suisse is being sued for $160 million by Loreley Financing, a subsidiary of German bank IKB, in the UK’s High Court for alleged fraudulent misrepresentation, barely a month after UBS rescued it. In a fresh headache for its new owner, the claim relates to the structuring, arranging, marketing and selling of notes that underpinned a complex transaction based on residential mortgage-backed securities (RMBS). Loreley, based on the Channel island of Jersey, lost its $100 million investment in the notes, which it claims was missold in July 2007.
This credit-crisis legacy issue sits among the raft of allegations of fraud and other misconduct surrounding Credit Suisse’s descent into cultural failure, which UBS management claims it will now be rooting out. UBS negotiated a 9 billion Swiss francs (about $10 billion) loss guarantee from the Swiss government when it took over Credit Suisse, to protect itself from such claims.
Mark Hastings, a partner at commercial-disputes practice Quillon Law, says, “The outcome of this case may well also set a precedent for UBS’ approach to handling the myriad Credit Suisse–related legal claims it is inheriting, and whether UBS will decide to simply settle other legacy claims behind closed doors to avoid further public scrutiny in Switzerland and internationally. Given the outcry following the write-off of $17 billion of Credit Suisse bonds last month, UBS may wish to keep protracted litigation to a minimum for reputational purposes.”
Last year, the Swiss bank paid nearly $500 million to settle similar claims relating to its RMBS business brought by the New Jersey attorney general. A year earlier, it entered into a $600 million settlement with monoline bond insurer MBIA.
In 2017, Credit Suisse paid the US Department of Justice $5.28 billion to settle a five-year investigation into its securitization of RMBS between 2005-2007. Some of its bankers had called the loans they securitized as “complete crap” and “utter complete garbage.”
The DoJ’s investigation prompted Loreley to sue, said its lawyer, Tim Lord KC, at the High Court on April 20. Credit Suisse denies wrongdoing, telling the UK High Court that the lawsuit is a “superficial” recreation of the past.