UBS AG, Switzerland's largest bank, said it's close to a settlement over U.S. mortgage-backed bond sales.
The bank reached an agreement in principle with the U.S. Federal Housing Finance Agency to settle claims related to residential mortgage-backed securities offerings between 2004 and 2007, according to the UBS statement, without disclosing the cost of the settlement. The company is booking about 865 million Swiss francs ($918.5 million) of pre-tax charges, provisions and writedowns in the quarter related to the settlement and a Swiss-U.K. tax agreement.
The FHFA sued UBS in 2011 over $4.5 billion in residential mortgage-backed securities that UBS sponsored and $1.8 billion of third-party RMBS sold to Fannie Mae and Freddie Mac, claiming the bank misstated the securities' risks. These suits alleged losses of at least $1.2 billion plus interest.
The FHFA sued 17 other banks later that year, seeking to recover losses on $196 billion in mortgage-backed securities sold to Fannie Mae and Freddie Mac, which have operated under U.S. conservatorship since they were seized amid subprime losses in 2008. Citigroup reached a settlement with the FHFA in May on a lawsuit over $3.5 billion in bonds the bank sold to Fannie Mae and Freddie Mac.
“We believe UBS has settled with the FHFA to move on quickly from its legacy issues,” said Kian Abouhossein and Amit Ranjan, London-based analysts at J.P. Morgan Chase in a note. “While litigation remains an overhang for the sector overall, in our view the settlement does suggest relatively lower litigation risk for UBS going forward.”
The full cost of the settlement, which still needs final approvals, would be covered by previous provisions and those taken in the second quarter, UBS said. At the end of 2012, UBS had $658 million in provisions related to sales of residential mortgage-backed securities and mortgages.
The bank is booking about 700 million Swiss francs of charges in the second quarter at the unit that focuses on reducing non-core and legacy assets. It will take about 100 million francs in wealth management because of the Swiss-U.K. tax agreement, which requires banks to collect taxes on accounts of U.K. citizens. The accord has been in force since the beginning of the year.
The Swiss Bankers Association said earlier this month that the country's banks face losses of about 500 million francs on payments made to the U.K. government as part of the deal related to untaxed assets in Switzerland.