Swiss banking giant Credit Suisse is facing U.S. scrutiny on mortgage-backed securities.
- The New York attorney-general is preparing to file a lawsuit against Credit Suisse
- Alleges the Swiss bank misled investors who lost $ 11B on mortgage-backed securities
- Credit Suisse is expected to fight the charges
(Financial Times) — The New York attorney-general is preparing to file a lawsuit against Credit Suisse, alleging the Swiss bank misled investors who lost more than $ 11bn on mortgage-backed securities.
In the lawsuit, which is expected to be filed this week, Credit Suisse faces claims that it misled investors regarding its due diligence practices on home loans it packaged into bonds, people familiar with the matter said.
The bank also allegedly misled investors over the lending practices of the loan originators it worked with, the lawsuit is to claim.
Eric Schneiderman, the New York attorney-general, has been investigating several banks and last month sued JPMorgan, alleging it misled investors who lost more than $ 20bn on mortgage-backed securities.
His activities have been seen as part of a last push by state and federal authorities to call banks to account for alleged wrongdoing in the run-up to the financial crisis.
His state’s powerful Martin Act allows Mr Schneiderman to bring cases without having to show that the accused intended to commit fraud. It also allows him to operate across state lines, essentially acting on behalf of investors across the US.
Mr Schneiderman’s claims concern mortgages that Credit Suisse packaged into more than 60 mortgage-backed securities and sold to investors. In some securitisations, about 30 per cent of the loans ultimately went into default. Overall, investors have incurred losses on about 12 per cent of $ 93bn in loans.
New York’s top prosecutor is to allege that the bank did not conduct proper due diligence on the loans it ultimately sold, in some cases selling investors loans it knew to be faulty.
Mr Schneiderman also is to claim that Credit Suisse incentivised lenders to originate more loans, which led to bad lending practices. The bank allegedly told investors it worked to ensure that its lenders abided by proper lending standards.
Both the New York attorney-general’s office and Credit Suisse declined to comment.
The impending Credit Suisse complaint follows the creation of a presidential working group into mortgage fraud, which was widely seen as an attempt to file big cases before the US elections in November.
Mr Schneiderman last month sued JPMorgan for allegedly defrauding issuers who lost more than $ 20bn on mortgage-backed securities written by Bear Stearns, the investment bank purchased by JPMorgan in early 2008.
Credit Suisse is expected to fight the charges.