UBS to Pay Over $1.4Bn to Settle with DOJ over RMBS Matter

UBS has agreed to pay $1.435bn in a settlement with the US Department of Justice (DOJ) over a legacy matter related to the issuance, underwriting and sale of residential mortgage-backed securities (RMBS) in 2006 and 2007. The fine is another big one for UBS since it paid $388 million​ last month over a failed deal between Credit Suisse and Archegos.

This agreement settles the final lawsuit presented by a Justice Department task force that was assigned to investigate the involvement of banks and other organizations in the creation and distribution of RMBS, which ultimately led to the 2008 financial crisis.

The DOJ filed a civil lawsuit in November 2018 accusing UBS of fraud in relation to 40 RMBS issued between 2006 and 2007. According to the investigation, UBS knowingly made false and misleading statements to buyers of these securities, violating the RMBS-related mortgage provisions of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). The FIRREA claims were based on alleged violations of the mail, wire, and bank fraud statutes.

The complaint alleged that UBS clearly understood that a significant portion of the loans backing the RMBS did not comply with loan underwriting guidelines that were designed to assess borrowers' ability to repay, contrary to statements made by UBS in publicly filed offering documents. The complaint also alleged that UBS knew that the property values associated with a significant number of the securitized loans were unsupported, and that significant numbers of the loans had not been originated in accordance with consumer protection laws.

UBS was said to have been aware of these significant issues because it had conducted extensive due diligence on the underlying loans before issuing RMBS to determine the loans were consistent with representations that would be made to investors. In the end, however, the 40 RMBS issued by the company resulted in significant losses.

Principal Deputy Assistant Attorney General Brian M. Boynton, Head of the Justice Department's Civil Division, said: "With this resolution, UBS will pay for its conduct related to its underwriting and issuance of residential mortgage-backed securities. The substantial civil penalty in this case serves as a warning to other players in the financial markets who seek to unlawfully profit through fraud that we will hold them accountable no matter how long it takes. The over $36 billion collected for conduct that fueled the 2008 financial crisis reflects the Department of Justice's deep commitment to protecting financial markets, investors and the public against fraudulent conduct."

With the settlement with UBS, the DOJ has now collected more than $36 billion in civil penalties from entities for their alleged conduct in connection with mortgages securitized in failed RMBS leading up to the 2008 financial crisis. These resolutions include settlements with the following banks, mortgage originators, and rating agencies: Ally Financial; Aurora Loan Services; Bank of America; Barclays; Citigroup; Credit Suisse; Deutsche Bank; General Electric; Goldman Sachs; HSBC; JPMorgan; Moody's; Morgan Stanley; Nomura; Royal Bank of Scotland; S&P; Société Générale; and Wells Fargo.