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UBS has agreed to pay $1.4bn to resolve a US regulatory probe into the alleged mis-selling of residential mortgage bonds in the run-up to the 2008 financial crisis, wrapping up the last remaining case brought by the US government against Wall Street groups over the issue.
The US Department of Justice alleged that UBS defrauded investors when it sold 40 residential mortgage-backed securities deals between 2006 and 2007, which ultimately sustained substantial losses during the housing crash, according to a statement on Monday.
“UBS knew that significant numbers of the loans backing the RMBS did not comply with loan underwriting guidelines that were designed to assess borrowers’ ability to repay,” the DoJ said.
It added the bank also “knew that the property values associated with a significant number of the securitised loans were unsupported, and that significant numbers of the loans had not been originated in accordance with consumer protection laws”.
UBS confirmed the settlement and said it had already fully provisioned for the costs. In the first quarter, it added $665mn to its reserves to cover the cost of the resolution.
The UBS settlement closes the last outstanding case brought by a special task force of the DoJ formed in 2012 to pursue Wall Street banks for their role in the 2008 financial crisis. The task force was formed after years of complaints from critics that regulators had not done enough to hold Wall Street to account for a wave of foreclosures and other economic damage caused by faulty home loans, as well as complicated securities that were underwritten by big banks in the mid-2000s.
In the end, the RMBS Working Group reached settlements with a total of 19 banks and rating agencies, bringing in more than $36bn for their misconduct, including a $7.2bn settlement with Deutsche Bank and a $17bn fine for Bank of America. Despite the big monetary settlements, few bankers were ever individually charged with wrongdoing.
In 2018, UBS vowed to fight the lawsuit the DoJ brought over RMBS, arguing that it was not a significant originator of RMBS. The lender also maintained that it had suffered its own losses on mortgage-related investments.
Barclays similarly refused to settle when the DoJ initially demanded more than $5bn. That gamble seemed to pay off when Barclays agreed a $2bn settlement a few months later.
UBS has been attempting to swiftly settle any outstanding litigation and regulatory issues as it focuses on absorbing its domestic rival, Credit Suisse, which it took over in a Swiss government-brokered rescue in March this year.
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