Credit Suisse Group (CS) resolved a lawsuit filed in 2010 by bond insurer Ambac Financial Group, Inc. The terms of the settlement were undisclosed.
The plaintiff alleged that DLJ Mortgage Capital – a subsidiary of Credit Suisse’s U.S. division – and Credit Suisse Securities misrepresented the mortgage-backed securities (:MBS), which were insured by Ambac in 2007.
Credit Suisse Securities, along with its DLJ Mortgage Capital, issued misleading statements and omissions related to MBS. Further, the defendants had concealed the risks, including the ability of the borrowers to repay. This portfolio was worth roughly $170 million and included around 2,000 home equity lines of credit.
Until the lawsuit was filed, Ambac had already paid $44 million in damages and that amount was anticipated to rise almost 10 times. In March last year, Ambac had a restructuring plan approved by the bankruptcy judge after it filed for Chapter 11 bankrupcy in 2010.
Recently, it had become a trend for bond insurers to sue major banks associated with underwriting of mortgage securities. JPMorgan Chase & Co. (JPM) and Bank of America Corporation (BAC) are also entangled in lawsuits from bond insurers such as Assured Guaranty Ltd. (AGO) and MBIA Inc., pertaining to the above-mentioned issue.
We believe that legal troubles such as this are likely to result in huge expenses and affect the top line of many financial institutions. However, the measures being undertaken by the regulatory and legal authorities to come down hard on such unwarranted activities of these institutions will provide huge relief to the investors.
However, these legal tangles have not had a substantial impact on Credit Suisse’s financials. The company reported fourth quarter net income attributable to shareholders of CHF 816 million ($894.8 million) or CHF 0.17 per share, compared to the year-ago quarter’s loss of CHF 632 million ($693.1 million) or CHF 0.62 per share. For full-year 2012, net income attributable to shareholders came in at CHF 3.8 billion ($4.2 billion), surging 99% from the last year.
Amid an uncertain macroeconomic environment, higher net revenues, aided by higher net interest income boosted Credit Suisse’s results. Further, reduced operating expenses and a strong capital position were the other positives for the quarter.
Credit Suisse currently retains a Zacks Rank #3 (Hold).
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