Credit Suisse Group AG
) legal woes continue to multiply. The Swiss bank was recently
sued by New Jersey's Attorney General (AG), John J. Hoffman.
Hoffman accused the bank of deception while selling $10 billion
of residential mortgage-backed securities (RMBS) to investors.
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The lawsuit is part of the Department of Justice's and
Residential Mortgage-Backed Securities Working Group's
investigation into faulty mortgage sales. According to court
filings, currently 16 financial institutions are under
investigation by the state working group for sale of faulty
mortgages. These 16 financial institutions include
Bank of America Corporation
The plaintiff alleged that Credit Suisse duped investors,
including charities and public and private pensions, into buying
RMBS underwritten by the bank in 2006 and 2007. The lawsuit
alleged that these mortgages were backed by faulty home loans
that failed to meet the bank's own underwriting standards. This
led to losses of more than $1 billion to the investors.
The lawsuit also charged Credit Suisse for misinforming
investors. The Swiss bank failed to disclose that almost 25% of
the home loans packaged into the RMBS were faulty. Moreover, the
company did not reveal that its own traders had refused to hold
some of those loans. Further, Credit Suisse allegedly did not
pass on the reimbursements it received from loan originators for
delinquent loans to the trusts holding the securities.
Credit Suisse has been plagued by litigation problems in the
recent past. The New York AG had filed a similar lawsuit filed
last year against the bank. Additionally, the banking major paid
$120 million last year to settle civil action by the Securities
and Exchange Commission related to its mortgage sales practices,
without admitting or denying wrongdoing.
Many major global banks are facing a wave of lawsuits, which
charge them of selling substandard mortgage securities prior to
the financial crisis. These have added to the legal woes of banks
in recent times.
Though these lawsuits could tarnish the image of the banks,
investors and financial institutions that suffered due to these
faulty practices are expected to be fairly compensated.
Credit Suisse currently carries a Zacks Rank #3 (Hold).