) - Switzerland's largest bank in terms of assets - announced the
settlement of a lawsuit filed by the Federal Housing Finance
Agency (FHFA), which had accused the former of misrepresenting
mortgage-backed securities (MBS). The Swiss banking major shelled
out roughly $885 million for the settlement.
FHFA had imputed UBS AG of misrepresenting MBS documents to
Federal National Mortgage Association
), also known as Fannie Mae, and
Federal Home Loan Mortgage Corporation
), popularly known as Freddie Mac. FHFA was appointed the
conservator of mortgage investors in 2008, as the downside in the
housing sector put investors' funds in jeopardy.
The settlement comes after a New York federal judge quashed UBS
AG's appeal to dismiss a lawsuit filed against it and other major
financial institutions in April.
In 2011, FHFA sued UBS AG and 17 other banks, accusing them of
selling faulty securities worth $200 billion to Fannie Mae and
Freddie Mac through misleading statements, which violated the
security laws. Out of these banks,
) and Bank of America Corp reached settlements with the
UBS AG has been in a legal conflict with FHFA with regard to more
than $4.5 billion of risky residential mortgage-backed securities
(RBMS) and $1.8 billion of third-party RMBS. The lawsuits claimed
losses of at least $1.2 billion along with interest.
Consequences of the Settlement
UBS AG expects CHF 865 million in charges, provisions and
writedowns in second-quarter 2013 results, (to be announced on
Jul 30) related to the settlement and a Swiss-U.K. tax agreement.
Notably, the Swiss bank was fined approximately CHF 1.4 billion
in December by regulators in the U.S., the U.K. and Switzerland
in relation to the LIBOR scandal.
Additionally, UBS AG has been aggressively seeking cost cuts to
counter the tough macroeconomic environment in Europe and
stringent regulations. Its cost containment measures include the
reduction of investment banking units as well as risky trades and
an increased number of layoffs.
The lawsuit settlement by UBS AG manifests its aim to resolve all
mortgage related issues, and thereby reduce costs over the
upcoming period. Further, the move is expected to provide relief
to the investors who were duped through such risky investments.
UBS AG currently carries a Zacks Rank #4 (Sell).
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