Swiss bank UBS has reached an agreement with the U.S. Department of Justice to pay a $1.435 billion settlement to resolve civil claims over its alleged misconduct dealing in residential mortgage-backed securities (RMBS) in the years leading up to the 2008 financial crisis.
The DOJ announced the settlement Monday in a press release, saying it stemmed from a civil action the agency filed against UBS in November 2018, a decade following the worst economic downturn since the Great Depression.
UBS confirmed the payout in a statement, adding that “the settlement has been fully provisioned in prior periods.”
“With this resolution, UBS will pay for its conduct related to its underwriting and issuance of residential mortgage-backed securities,” U.S. Attorney Breon Peace for the Eastern District of New York said in a statement. “The substantial civil penalty in this case serves as a warning to other players in the financial markets who seek to unlawfully profit through fraud that we will hold them accountable no matter how long it takes.”
The 2008 meltdown was triggered by overheating in the housing markets after banks and other lenders approved mortgages – sometimes to borrowers with poor credit histories – driving up home prices to astronomical levels. Banks then sold the risky mortgage-backed securities to other financial institutions.
Large financial conglomerates like Bear Stearns, Lehman Brothers, Merrill Lynch and Morgan Stanley all became lenders of mortgages.
According to a 2018 paper published by the University of California, Berkeley, by the summer of 2007, UBS held onto $50 billion of high-risk mortgage-backed securities, Citigroup $43 billion, Merrill Lynch $32 billion and Morgan Stanley $11 billion.
The UBS agreement brings the total amount of civil penalties paid by financial entities over the 2008 crisis to more than $36 billion.
The DOJ said the UBS settlement resolves the final case brought by its working group formed to investigate the conduct of banks and other institutions for their involvement in creating and issuing RMBS.
FOX Business’ Megan Henney contributed to this report.