UBS Group AG UBS has arrived at a settlement with the U.S. Department of Justice (DOJ) to pay $1.44 billion as a penalty to resolve a long-running civil case. The civil action against UBS was filed in 2018, alleging misconduct with regard to the underwriting, issuance and sale of residential mortgage-backed securities (RMBS) that were issued in 2006-2007.

UBS said that the entire settlement has been provisioned in prior periods.

This case was filed against UBS after an extensive investigation that held UBS responsible to have defrauded investors in connection with the sale of 40 RMBS during the said period. UBS was alleged of violated Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) by knowingly making false and misleading statements to the buyers of these securities regarding characteristics of the mortgage loans underlying RMBS.

The government held that UBS had knowledge about significant numbers of loans which backed RMBS did not comply with loan underwriting guidelines. Further, UBS was well aware that a number of securitized loans were unsupported by the property values associated with them. Also, a high number of loans were not originated in compliance with the consumer protection laws.

Since UBS had carried out extensive due diligence on the underlying loans before it had issued RMBS, it was aware of major problems.  Hence, ultimately, those 40 RMBS did sustain substantial losses.

With this settlement, the U.S. DOJ has successfully collected more than $36 billion in civil penalties in respect to alleged misconduct by various entities. These were connected with the failure of RMBS that ultimately led to 2008 financial crisis.

Since UBS’s emergency takeover of Credit Suisse, it has been facing legal hassles and operational challenges. This week, individual shareholders and former employees of Credit Suisse are expected to lodge a claim in Zurich’s commercial court. Prior to this, it had faced a class action suit by former shareholders of Credit Suisse who had suffered damages due to an inappropriate exchange ratio.

UBS Group AG’s shares have gained 6.7% on NYSE over the past six months against the industry’s decline of 1.8%.

UBS carries a Zacks Rank #3 (Hold) at present.

Misconduct by Other Firms

Bank of America BAC has been hit with substantial financial penalties that amount to $250 million. This includes $100 million in customer reimbursements and $150 million in fines due to a trio of unsavory practices involving overdraft fees, withholding credit card rewards and opening unauthorized accounts.

Consumer Financial Protection Bureau (CFPB) and Office of the Comptroller of the Currency (OCC) have levied this colossal fine after BAC’s actions were deemed illegal and a detriment to customer trust. The bank must refund $100 million to affected customers and pay $90 million to CFPB and $60 million to OCC.

Wells Fargo & Company WFC agreed to pay $1 billion related to a lawsuit accusing it of overstating the progress on resolving its 2016 fake account scandal and thereby defrauding shareholders. Since 2018, WFC has been under consent orders from Federal Reserve and two other financial regulators to improve its governance and oversight.

But shareholders alleged that Wells Fargo and its past management misinformed them about how swiftly the company was addressing the governance issues and risk-management systems due to which the bank opened millions of fake accounts. Accordingly, when these shortcomings surfaced, WFC’s market value fell by more than $54 billion over two years ending in March 2020.

However, Wells Fargo denied any wrongdoing and decided to settle to eliminate further litigation expenses.
Bank of America Corporation (BAC): Free Stock Analysis Report

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UBS Group AG (UBS): Free Stock Analysis Report

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