Credit Suisse Group AG (CS), Switzerland's second largest bank, will have to face the court case filed against it by the New York Attorney General (AG) related to misrepresentation of risk involved in mortgage-backed securities (MBS) sales.
In Nov 2012, a lawsuit, which seeks more than $10 billion in damages, was filed against Credit Suisse under the Martin Act. The bank allegedly misled investors regarding the loan quality at the time of selling MBS before the financial slump of 2008.
Credit Suisse had appealed in the Supreme Court against the lawsuit. However, the bank’s plea to discharge the case was rejected by a New York State Supreme Court judge, who extended support to the AG’s claims. Nonetheless, the bank seems determined to further defend itself in the case.
Following the New York State lawsuit, in Dec 2013, the New Jersey AG also sued Credit Suisse of cheating investors of more than $1 billion by failing to disclose the risks inherent in its residential mortgage-backed securities issued before the financial crisis period.
With regulatory bodies becoming more alert and launching various programs to protect investors’ interests, several fraud cases are being unveiled, leading to investigations and settlements. If the current charges against Credit Suisse are proved true, the bank will have to shell out billions of dollars as settlement charges.
Some major U.S. banks such as JPMorgan Chase & Co. (JPM), Citigroup Inc. (C) and Bank of America Corporation (BAC) have settled similar allegations by agreeing to pay settlement charges of around $13 billion, $7 billion and $17 billion, respectively.
Currently, Credit Suisse holds a Zacks Rank #3 (Hold).
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