US Justice proposes $5-7 bn fine on Credit Suisse over toxic mortgage

The US Department of Justice is asking Credit Suisse to pay between $5 billion and $7 billion to settle an investigation into its selling of mortgage-backed securities, a source with knowledge of the matter told Reuters on Tuesday.

The claim against Credit Suisse, which is likely to be negotiated in 2017, far outstrips the bank’s and investors’ expectations. However, if the sides do not reach an agreement, US authorities could sue the bank. Credit Suisse and the Department of Justice declined to comment.

The Swiss multinational’s litigation provisions totaled $1.56 billion (1.605 billion Swiss francs) at the end of 2015. Last month Credit Suisse said it had raised litigation provisions by 357 million francs, mainly in connection with mortgage-related matters.

While it is yet to become clear what the final payment will be, the source told Reuters that “Credit Suisse is confident of reaching a better solution.” However, the Department of Justice has taken a tough stance in settlement negotiations with other banks, requesting sums higher than the eventual fine. But if it were to be as high as the proposed sums, this would be a severe strain for the Swiss lender’s fragile finances and would likely further hurt investor confidence.

The penalties are linked to a 2012 initiative by US President Barack Obama to hold banks accountable for selling mortgage debt while misleading investors about the risks.

Europe’s Deutsche Bank, Royal Bank of Scotland, Barclays, UBS and HSBC are among others waiting for settlement talks to be concluded.