, Ireland-based investment fund, Phoenix Light SF Ltd. sued Swiss
Credit Suisse Group AG
) for the misrepresentation of mortgage-backed securities (MBS).
The securities were worth about $362 million.
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The complaint was filed in a U.S. state court in Manhattan. The
faulty securities originated from five other investors, which
have collapsed or almost collapsed. Phoenix Light claimed that
obscurity regarding the risks related to the MBS when they were
sold led it to incur huge losses. Credit Suisse, on the other
hand, was alleged to have got significant profits from the
structuring, marketing and sale of the certificates.
Phoenix Light claimed that in the period from 2005 to 2007, the
Swiss banking giant gave false information and withheld certain
facts related to the credit quality of the loans underlying the
securities. Additionally, the documents provided by Credit Suisse
did not disclose that the bank was privately betting for the
default of the securities.
Credit Suisse is not the only major bank to be embroiled in
litigation hassles with Phoenix Light. Other U.S. banking giants
JPMorgan Chase & Co.
Goldman Sachs Group Inc.
) have been slapped with charges of misrepresentation of MBS as
We believe that lawsuits such as these would lead to mounting
litigation risks for Credit Suisse and dent both the company's
image and financials. If found guilty, Credit Suisse is liable to
be fined by the authorities.
In such cases, companies often opt for settlements. However, this
has chances of exhausting the company's financials, which
could have been used in growth initiatives instead.
On the other hand, recoveries by Phoenix Light would reduce the
losses from the risky investment.
Currently, Credit Suisse carries a Zacks Rank #3 (Hold). A
better-performing foreign bank is
BNP Paribas SA
), which carries a Zacks Rank #1 (Strong Buy).