It was the latest ongoing litigation related to the 2008 financial crisis. Credit Suisse announced on Monday that it had reached a final agreement with the New Jersey Attorney General to settle an old case involving the sale of asset-backed securities. mortgages, the value of which had suddenly collapsed when the real estate bubble burst in the United States.
The second Swiss bank, in the midst of a crisis of mistrust on the markets, and which must present its strategic plan on October 27, will thus pay a fine of 495 million dollars to settle all the damages in court. An amount already covered by provisions, specifies the bank in its press release. This agreement “marks another important step in the bank’s efforts to actively resolve past disputes and issues”also underlined Credit Suisse.
In a complaint filed in 2013, the New Jersey State Attorney accused the bank of not having sufficiently informed its customers of the risks associated with some 10 billion dollars of securities backed by mortgage loans (MBS, mortgage back securities), resulting in an initial $3 billion compensation claim. At the end of 2021, the banking group had constituted a stock of provisions related to this litigation of 850 million dollars. It will therefore be able to take back part of these provisions in 2022.
Retail banking affected by the sale of assets
This regulation lifts a serious mortgage on the bank before the presentation of its strategic plan which should reassure customers and investors, and the outlines of which are giving rise to much speculation. According the Financial Timesseveral options would be considered, in particular to meet a capital requirement estimated at 4.5 billion Swiss francs.
After having mentioned the split of the investment bank, a drastic plan to cut some 6,000 jobs (out of a total workforce of 50,000), the bank could also sell some assets of its retail bank in Switzerland, such as its stake in the market operator Six (Zurich Stock Exchange) or the fund distributor Allfunds, specialized Swiss banks or SwissCard, a joint venture held with American Express. The famous Savoy palace, owned by the bank, could also be part of the assets sold.
3.6 billion Swiss francs in litigation since 2020
The bank, which has been going through a very difficult time for two years, must imperatively strike hard to regain the confidence of the markets and customers. Its capitalization has literally melted for a year and a half to some ten billion Swiss francs, which now makes it prey. On the other hand, the risk of bankruptcy, for a time mentioned on the markets, is not seriously considered, even if the bank’s CDS (securities which offer insurance against a possible default, which are traded on a narrow and highly speculative) had recently reached exceptionally high levels, even higher than during the 2008 financial crisis.
With a CET1 solvency ratio of 13.5%, the bank’s solvency nevertheless remains well above regulatory requirements. The fact remains that the bank must raise capital to strengthen its equity to respond to the concerns of its main lenders, given its risk profile and the likelihood of a deterioration in its credit rating. And this financial fragility is largely due to the cost of litigation that the bank has had to settle in recent years: 3.6 billion Swiss francs since the end of 2020. But the bank also shows a drop in its income and costs. rising. Hence the strategic changes that are required of the new management of the bank.