UBS to pay $1.44 billion in Department of Justice settlement

By Jon Swartz and Steve Gelsi

UBS settlement comes after similar moves by JPMorgan Chase, Wells Fargo, Bank of America, Citigroup and others

UBS has agreed to pay $1.44 billion to settle a Justice Department case tied to the issuance of residential mortgage-backed securities in the buildup to the 2008-09 financial crisis.

The agreement concludes the last outstanding case brought by the U.S. government against major banks, an initiative that collected $36 billion in settlements from nearly 20 financial institutions, according to the DOJ.

Those banks included JPMorgan Chase, Bank of America, Wells Fargo, Goldman Sachs, Morgan Stanley and Citigroup.

Darryll Hendricks, UBS chief operating officer for the Americas, and Patrick Shilling, UBS general counsel for the Americas, signed the agreement to settle the civil action filed in November 2018.

Lawyers for UBS (UBS) did not immediately respond to an email from MarketWatch.

In a regulatory statement, the Swiss-based UBS confirmed it would pay the settlement "to resolve all civil claims by the DOJ in connection with UBS's legacy RMBS [residential mortgage-backed securities] business in the U.S." The settlement has been fully provisioned in prior periods, the bank said.

The complaint by the U.S. alleged that UBS defrauded investors in connection with the sale of 40 residential mortgage-backed securities issued in 2006 and 2007.

"The complaint alleged that UBS knowingly made false and misleading statements to buyers of these securities relating to the characteristics of the mortgage loans underlying the RMBS," the complaint said.

These actions allegedly violated the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).

Associate Attorney General Vanita Gupta, Principal Deputy Assistant Attorney General Brian M. Boynton and Breon Peace, U.S. attorney for the Eastern District of New York, issued statements about the settlement.

"This settlement represents accountability from those who thought they were above the law," said Ryan Buchanan, U.S. attorney for the Northern District of Georgia.

The government's complaint alleged UBS knew that "significant numbers" of the loans backing its residential mortgage-backed securities did not comply with loan underwriting guidelines to assess the ability of borrowers to repay the loans.

"UBS knew that the property values associated with a significant number of the securitized loans were unsupported, and that significant numbers of the loans had not been originated in accordance with consumer protection laws," the DOJ said.

The 40 residential mortgage-backed securities sustained substantial losses.

Prior to the UBS settlement, the U.S. government also settled with Ally Financial(ALLY), Aurora Loan Services, Bank of America(BAC), Barclays(BARC.LN), Citigroup(C), Credit Suisse, Deutsche Bank(DBK.XE), General Electric(GE), Goldman Sachs(GS), HSBC(HSBA.LN), JPMorgan Chase(JPM), Moody's(MCO), Morgan Stanley(MS), Nomura, Royal Bank of Scotland, S&P, Société Générale and Wells Fargo(WFC).

-Jon Swartz

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08-14-23 1541ET

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