GENEVA - The U.S. government has reached “an agreement in principle” to settle its lawsuit against Swiss banking giant UBS AG that seeks to recoup more than $900 million in losses from mortgage-backed securities, the bank announced Monday.
In 2011, the U.S.
government sued UBS and 17 other financial firms for selling some $196 billion worth of mortgage-backed securities to housing financing agencies Fannie Mae, the Federal National Mortgage Association, and Freddie Mac, the Federal Home Loan Mortgage Corp. However the securities turned toxic when the housing market collapsed.
The U.S. Federal Housing Finance Agency suit alleged more than $900 million in losses by Fannie Mae and Freddie Mac from the bad UBS bonds.
Among the major U.S. banks targeted by the lawsuits were Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., and Goldman Sachs Group Inc., but the action extended to other large European banks including The Royal Bank of Scotland, Barclays Bank and Credit Suisse.
Fannie Mae and Freddie Mac, which are overseen by the FHFA, buy mortgage loans and securities issued by banks so that the lenders use the money to reinvest in the property market. The two agencies invested heavily in residential mortgage-backed securities, which bundled pools of mortgages into complex investments that collapsed after the real-estate bust and helped fuel the financial crisis in late 2008.
UBS released no more details or costs of the settlement, which it said still required “final approvals by the parties.”
The Swiss banking giant also announced Monday that its net profit jumped 62 percent in the second quarter of the year to about $734 million, up from about $454 million in the same period a year earlier. UBS said it was making progress with its strategic overhaul.
But the second-quarter improvement is still way down from the $1.09 billion that the Zurich-based bank reported in the comparable period in 2011. The basic results were released unexpectedly, a week ahead of a planned second quarter report.
“The big plus is stronger capital and the inflows in wealth management have gone well,” said Christopher Wheeler, a London-based analyst at Mediobanca SpA.
UBS exceeded analysts’ profit estimates for a second quarter in a row after Chief Executive Officer Sergio Ermotti announced 10,000 job cuts last year and a strategy to exit most debt-trading businesses at the investment bank to focus the firm on money management.
“UBS has comfortably beaten forecasts,” Matt Spick, an analyst at Deutsche Bank AG who rates UBS a buy, wrote in a note to clients.
Information for this article was contributed by John Heilprin of The Associated Press, Elena Logutenkova of Bloomberg News and Jim Puzzanghera of the Los Angeles Times.
Business, Pages 19 on 07/23/2013