Residential mortgage-backed securities scam will cost UBS $1.4 billion

Federal prosecutors said Monday that the Swiss bank UBS has agreed to pay $1.4 billion in civil fines for fraud and wrongdoing in selling residential mortgage-backed securities during the global financial crisis.

In a statement released Monday, the bank said the settlement was about a "legacy matter" from 2006 to 2007 that led to the financial crisis.

The settlement ends the last case that the U.S. Department of Justice brought against some of the biggest banks for making false claims to people who bought mortgage-backed securities. The Justice Department says the total amount of money recovered from the cases is now $36 billion.

UBS's payment is almost as much as the value of its home loans between 2005 and 2007 when it stopped making home loan-backed securities. In those three years, UBS gave out $1.5 billion in home loans, the bank said in a 2018 statement that disputed the Justice Department's claims.

UBS said that most of the loans behind the 40 RMBS mentioned in the complaint came from other financial institutions.

In the years before the financial crisis, investment banks put together groups of debts and sold them to institutions. These securities were ranked and graded based on how good they were, and different "tranches" of mortgages were thought to protect against the risk of total default.

But the buyers didn't know that those mortgages weren't as good as their grades said they were. Like other banks that signed with the Justice Department, UBS knew that the homes underlying the mortgage-backed securities did not meet underwriting standards.

Prosecutors say that UBS did "extensive" research on the loans that the stocks were based on before making and selling them to its clients. They also say that UBS kept selling the products even though it knew they had significant problems.

UBS had earlier said that it had "fulfilled" its obligations to its clients, which it called "highly sophisticated investors" and "some of the biggest financial institutions in the world."

Bank of America, Citigroup, General Electric, Goldman Sachs, JPMorgan, and Wells Fargo are among the 18 other banks that have reached settlements with the Justice Department over mortgage-backed securities problems.

Credit Suisse, a Swiss bank that went out of business and is now owned by UBS, also made a deal with the Justice Department over wrongdoing linked to MBS offerings.