Credit Suisse Group AG
) agreed upon a settlement over charges levied against it by bond
investors in National Century Financial Enterprises in lawsuits
filed in the U.S. District Court, Southern District of New York.
The note holders have accused the bank of raising money for the
healthcare financial company, which went bankrupt in 2002. The
settlement demands $400 million from Credit Suisse.
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The lawsuit settlement will slash Credit Suisse's fourth-quarter
net profit by 134 million Swiss francs ($141 million) to 263
million Swiss francs ($277 million), reported in earlier
February. Notably, the settlement of the lawsuits follows the
dismissal of the bank's bid to be tried in a separate hearing
from convicted National Century's co-founder Lance Poulsen in Jan
The lodged complaint claims that Credit Suisse helped sell the
notes issued by National Century and concealed the risks
associated with the bonds, including the ability of the borrowers
to repay. Moreover, Credit Suisse has been accused of
deliberately covering the alleged misuse of investors' funds by
the company along with National Century's co-founder and Chief
Executive, Lance Poulsen's involvement in the fraud.
Therefore, the state of Arizona,
AllianceBernstein Holding LP
), Lloyds TSB Bank Plc,
), Allianz SE's investment management group, Pimco and other
investors which purchased National Century bonds from 1998 to
2002, sued Credit Suisse on grounds of scam and conspiracy and
filed the lawsuits.
Earlier in Mar 2013, Credit Suisse resolved a lawsuit filed in
2010 by bond insurer Ambac Financial Group, Inc. The terms of the
settlement were undisclosed. The plaintiff alleged that DLJ
Mortgage Capital - a subsidiary of Credit Suisse's U.S. division
- and Credit Suisse Securities misrepresented the mortgage-backed
securities (MBS), which were insured by Ambac in 2007.
Of late, the trend of bond insurers suing major banks associated
with the underwriting of mortgage securities has become quite
prevalent. JPMorgan Chase & Co. and
Bank of America Corporation
) have also been entangled in lawsuits from bond insurers such as
Assured Guaranty Ltd. and MBIA Inc., pertaining to the
Legal Woes Continue
Trouble has been brewing for banks for quite sometime now owing
to fraudulent representations and breach of contract. Banks face
several other charges related to the sale of defective
Litigation overhangs have been a common problem for major banks
since the financial meltdown. In effect, these lawsuits are
expected to tarnish their reputation and financials over time.
However, investors and other financial institutions bearing the
brunt of these faulty practices are expected to be fairly
Legal troubles such as these are expected to result in huge
expenses and affect the top line of many financial institutions.
However, the measures being undertaken by the regulatory and
legal authorities to come down hard on such unwarranted
activities of these institutions will provide huge relief to the
With the settlement of the lawsuit, Credit Suisse plans to move
forward with its business strategies. Moreover, pending lawsuits
can further trigger financial hassles while tarnishing the
company's image. Therefore, it is in the interest of the company
to resolve such matters at the earliest.
Currently, Credit Suisse retains a Zacks Rank #5 (Strong