Credit Suisse completes $5.3B deal over debt

Credit Suisse Group and the Justice Department finalized a $5.3 billion agreement to settle a U.S. investigation into the bank’s sales of toxic mortgage debt before the financial crisis.

Credit Suisse will pay a $2.5 billion civil penalty and $2.8 billion in consumer relief, to be paid over five years after the settlement, the Justice Department said Wednesday, in line with the bank’s Dec. 23 announcement of a preliminary resolution. As part of the settlement, the bank conceded that it sold investments containing loans that it knew were likely to fail.

The Zurich-based bank has said it plans to take a pretax charge of about $2 billion in the fourth quarter to account for the settlement.

“Credit Suisse made false and irresponsible representations about residential mortgage-backed securities, which resulted in the loss of billions of dollars of wealth, and took a painful toll on the lives of ordinary Americans,” Attorney General Loretta Lynch said in a written statement.

Chief executive officer Tidjane Thiam, who is shifting the bank’s focus away from capital-heavy investment banking toward wealth management, already tapped shareholders for 6 billion Swiss francs in late 2015 and is planning a partial public offering of the Swiss unit late this year to shore up capital. Harris Associates, one of the biggest investors in Credit Suisse, has said the settlement terms are favorable enough that the bank wouldn’t even need to sell the Swiss unit, though there may be other reasons for pursuing a partial initial public offering.

In its waning days, the Obama administration is pressing to wrap up investigations of Wall Street firms for creating and selling the subprime mortgage bonds that fueled the 2008 financial crisis. Before the Credit Suisse deal and a $7.2 billion agreement with Deutsche Bank, authorities had extracted more than $46 billion from six U.S. financial institutions over their dealings in mortgage-backed securities.

Among the other remaining targets of mortgage-related investigations is London-based Barclays Plc, which balked at paying the amount sought by the government in settlement negotiations, leading the Justice Department to sue the bank last month.

Other European banks with pending investigations over toxic debt include HSBC Holdings, UBS Group and Royal Bank of Scotland Group.