Swiss bank UBS agreed to pay civil penalties for selling toxic mortgages before the Great Recession

August 15, 2023: On Monday, Swiss bank UBS agreed to pay civil penalties for selling toxic mortgages before the Great Recession.

In its statement Monday, the bank described the settlement as dealing with a “legacy matter” dating from 2006 to 2007, leading up to the financial crisis.

The settlement concludes the final case brought by the Justice Department against several of the largest financial institutions over misleading statements made to the purchasers of those mortgage-backed securities. The cumulative recoveries in the cases now total $36 billion, according to the Justice Department.

In the years leading up to the financial crisis, investment banks packaged, securitized, and sold bundles of mortgages to institutional buyers. Those securities were rated and graded according to quality, with various “tranches” of mortgages hypothetically safeguarding against the risk of a complete default.

But unbeknownst to the buyers, those mortgages were less high-quality than their ratings suggested. Like other banks who settled with the Justice Department, UBS was aware that the mortgages underneath the mortgage-backed securities didn’t comply with underwriting standards.

Prosecutors alleged UBS continued to sell these dangerous securities products with great financial success.

The Justice Department has secured settlements with 18 other financial institutions over mortgage-backed security issues, including Bank of America, Citigroup, General Electric, Goldman Sachs, JPMorgan, and Wells Fargo.

Credit Suisse, the defunct Swiss bank now owned by UBS, also settled with the Justice Department over misconduct related to MBS offerings.