UBS Building in Manhattan, New York – A General View
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The renowned Swiss bank UBS has agreed to pay a total of $1.4 billion in civil penalties due to fraudulent activities and misconduct in its offering of residential mortgage-backed securities during the global financial crisis, as announced by federal prosecutors on Monday.
In their own statement, UBS described the settlement as addressing a “legacy matter” from the years 2006 to 2007, leading up to the financial crisis.
This settlement marks the conclusion of the last case brought by the U.S. Department of Justice against major financial institutions involved in misleading practices towards purchasers of mortgage-backed securities. The cumulative amount recovered in these cases now stands at $36 billion, according to the Justice Department.
Before the financial crisis, investment banks packaged, securitized, and sold bundled mortgages to institutional buyers. These securities were assigned ratings and grades based on their quality, with various “tranches” of mortgages providing hypothetical protection against complete default.
However, unbeknownst to buyers, the actual quality of these mortgages did not match their ratings. UBS, along with other banks that settled with the Justice Department, was aware that these mortgages did not comply with underwriting standards.
Prosecutors alleged that UBS conducted thorough due diligence on the underlying loans before creating and selling the securities to clients. Despite knowing about the significant issues, UBS continued to sell them and achieve financial success.
The Justice Department has reached settlements with 18 other financial institutions regarding issues with mortgage-backed securities, including Bank of America, Citigroup, General Electric, Goldman Sachs, JPMorgan, and Wells Fargo.
Additionally, Credit Suisse, the now-defunct Swiss bank owned by UBS, also settled with the Justice Department over misconduct related to mortgage-backed security offerings.
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