More Fines in Store for UBS and Credit Suisse

UBS, Credit Suisse, RMBS, litigation, fines, penalties

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Fines and penalties for investment banks are poised to top last year's total. Credit Suisse and UBS are among those expected to pay billions to make amends for mis-selling securities linked to mortgages.

In April, Goldman Sachs paid U.S. regulators $5 billion to settle an investigation over how it packaged and sold securities backed by home loans in the run-up to the financial crisis.

It was the largest legal settlement this year to date, and a harbinger for UBS and Credit Suisse, which are on the hook for the same selling practices.

$2 Billion from UBS, Credit Suisse

Goldman's $5 billion fine drove the total fines paid by investment banks so far this year to $9.79 billion, which is already close to last year's total of $10.36 billion, according to data compiled by analytics firm Corlytics and reported by the «Financial Times».

Similar settlements are expected for several European banks, including Switzerland's largest banks, in coming months and years. Analysts at Barclays expect UBS and Credit Suisse to pay $2 billion each for the probes – and doesn't rule out a capital increase from Credit Suisse as a result.

Next Big Scandal?

Investors including Ingo Speich at Frankfurt-based Union Investment are worried not just about lawsuits that the banks have already disclosed their involvement in, such as on residential mortgage-backed securities. 

«The risk is that at some point in time something could pop up that affects the entire banking sector that nobody has on their radar screen,» he told the «FT».

The industry is still dealing with scandals over colluding on benchmark interest rates, metal prices, and other trading practices. This year's fines of almost 10 billion are a far cry from the record $58.24 billion that banks paid to settle lawsuits and legal probes two years ago.

«Fines Potential»

For banks, fines and penalties have become an increasingly common part of business. The banking industry started the year armed with $43.7 billion in provisions to deal with scandals, up from the $36.3 billion it held at the same time last year.

The fines are set to rise even further towards 2018, when regulators in Europe have a far more detailed view of bank activities after MiFID II come into effect.

The reforms will give regulators «a lot of fines potential» because it will deliver them massive amounts of bank transaction data – including any misconduct, according to Boston Consulting Group's Philippe Morel.

Litigation to Taper Off

Fines are «part and parcel» of what investors sign up for when they buy investment banks, he said.

For those waiting for a taper to the scandals, there is light at the end of the tunnel, according to Morel.

«In terms of the overall number, we think we will go down from the peak to something much closer to what we saw last year and probably a bit lower than that.»

 

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