UBS, the last bank prosecuted for its role in the 2008 global financial crisis, will pay $1.4 billion to avoid trial.

UBS, the last bank prosecuted for its role in the 2008 global financial crisis, will pay $1.4 billion to avoid trial.

UBS Settles Lawsuit, Paying the Price for Financial Misconduct

UBS Settlement

The European banking giant, UBS, has agreed to settle a lawsuit relating to its US activity during the financial crisis over a decade ago. This settlement brings an end to the final case brought by US prosecutors investigating how banks’ conduct contributed to the crisis, specifically through the issuance of residential mortgage-backed securities (RMBS).

RMBS are debt-backed assets that pay investors from the interest on a pool of residential mortgage loans. While low interest rates, sub-prime lending, and government involvement in the housing market have all been blamed for fueling the financial crisis of 2008, the securitization of bad loans that were rated too highly and sold to unsuspecting investors also played a significant role.

In June 2007, credit rating agencies Moody’s and S&P downgraded the ratings of billions of dollars worth of subprime RMBS, signaling a major red flag. The lawsuit against UBS, filed by prosecutors in late 2018, accused the bank of knowingly making false and misleading statements to buyers of RMBS regarding the mortgages underpinning the assets. The prosecutors claimed that UBS had violated US law related to mail, wire, and bank fraud statutes.

The legal complaint alleged that UBS was aware that a significant number of loans backing the RMBS did not comply with underwriting guidelines and that the property values associated with many of the securitized loans were unsupported. As a result, the 40 RMBS UBS sold in the US sustained substantial losses.

The settlement between UBS and the US Department of Justice (DOJ) was agreed upon in exchange for the dismissal of the complaint. The DOJ’s pursuit of accountability is driven by the recognition that lenders’ misconduct preceding the financial crisis contributed to devastating consequences for people across the United States.

“In the wake of the 2008 financial crisis, people all across the country experienced financial ruin and emotional devastation, and many are still recovering nearly 15 years later,” stated associate attorney general Vanita Gupta, emphasizing the commitment of the department and partnering agencies to hold accountable those who break the law and undermine the well-being of American families.

The settlement amount agreed upon signifies UBS will pay $1.435 billion to resolve all civil claims by the DOJ in connection with its legacy residential mortgage-backed securities business in the US. UBS made a statement acknowledging the settlement but did not provide further comment when contacted by ANBLE.

This settlement adds to the sum of over $36 billion paid by financial institutions in settlements relating to their alleged misconduct involving RMBS sales prior to the financial crisis. However, UBS’s figure is relatively smaller compared to settlements paid by its US counterparts. In 2013, JPMorgan, the largest bank in America, agreed to pay $13 billion to settle charges brought by the US government regarding the quality of mortgages it sold to investors leading up to the 2008 crash. Additionally, Bank of America made a record $16.7 billion settlement a year later, resolving allegations of financial fraud during the financial crisis.

It is important to note that European banks have not been spared from legal consequences for their role in the crisis. RBS (Royal Bank of Scotland) and Credit Suisse, which was acquired by UBS last year, are among those that have also paid multibillion-dollar settlements to the US government.

UBS paying for its conduct serves as a warning to other players in the financial markets seeking to unlawfully profit through fraud. The message from the US attorneys is clear: regardless of how long it takes, they will hold accountable those who undermine the integrity of the financial system and the well-being of individuals and families.

The settlement reached by UBS, although significant, represents only one step towards achieving the desired outcome of justice and accountability. As we look towards the future, it remains crucial for regulatory bodies and financial institutions to continue working towards building a more transparent, ethical, and resilient financial landscape that safeguards the interests of all stakeholders.