ZURICH/NEW YORK (Reuters) – The U.S. Justice Department has asked Credit Suisse to pay between $5 billion and $7 billion to settle an investigation into its sale of toxic mortgage-backed securities on the eve of the 2008 financial crisis, a said a source with knowledge of the matter said, but the bank resisted settling for that amount.
The size of the suggested settlement indicates that the cost to the bank could be higher than analysts expected and explains why Credit Suisse management, according to a second source, requested a smaller penalty.
“Credit Suisse is convinced that it has found a better solution,” said the second person. If the talks fail, US law enforcement could sue the bank, prolonging the uncertainty.
In a sign that negotiations could be nearing their final stage, US Attorney General Loretta Lynch met with Credit Suisse Chief Executive Tidjane Thiam last week, another person familiar with the matter said.
A potential resolution could come as early as this week.
The sources did not want to be identified because the negotiations are not public.
Credit Suisse and the Department of Justice declined to comment.
The sanction stems from a 2012 initiative by US President Barack Obama to hold banks accountable for selling mortgage debt while misleading investors about the risks, a practice that helped cause the worst economic crisis in years. 1930.
The penalties, which for U.S. banks reached $46 billion, are set to inflict a further setback on European lenders, many of whom remain fragile, with little capital, following the financial crash.
After record settlements were reached with US banks such as Bank of America and JPMorgan, attention turned to European banks Deutsche Bank, Royal Bank of Scotland, Credit Suisse, Barclays, UBS and HSBC.
News in September that the Justice Department had made an initial request for $14 billion from Deutsche to settle its case sent shares of the German lender plummeting and raised fears that Credit Suisse could also face a longer penalty. severe.
Just before Deutsche confirmed the Justice Department was seeking $14 billion, JP Morgan analysts pegged Credit Suisse’s fine at around $2 billion.
Deutsche Bank could accept its sanction for selling toxic mortgages this week, a person with direct knowledge of the matter said on Monday. The bank said it expected to pay significantly less than $14 billion.
Credit Suisse’s litigation provisions at the end of 2015 were 1.605 billion Swiss francs ($1.56 billion). In November, the bank announced that it had increased its litigation provisions by 357 million francs, mainly in connection with mortgage matters.
In addition to the Justice Department investigation, Credit Suisse is defending itself against lawsuits filed by the attorneys general of New York and New Jersey for similar claims involving billions of dollars in losses to investors.
If Credit Suisse reaches a settlement with the federal authorities, it will likely do so with the states as well.
A spokeswoman for the New York Attorney General declined to comment, and New Jersey did not immediately return a call for comment.
President-elect Donald Trump takes office on January 20, which means the key government players involved in the negotiations would change, complicating the banks’ efforts to reach agreements.
Editing by John O’Donnell, Carmel Crimmins and James Dalgleish
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