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Credit Suisse probed over mortgages, say sources

NEW YORK, Oct 5 — US federal and state authorities are investigating Credit Suisse AG over mortgage-backed securities packaged and sold by the bank, people familiar with the probe said yesterday.

The Justice Department and the New York Attorney General are among those probing Credit Suisse’s actions, according to the sources, who spoke on condition of anonymity.

A spokesman for Credit Suisse, Switzerland’s second-largest bank, declined to comment.

Zurich-based Credit Suisse is the second bank known to be targeted by US authorities probing how banks bundled mortgage loans into securities during the US housing boom.

New York Attorney General Eric Schneiderman filed a civil fraud case against JPMorgan Chase & Co on Monday over mortgage-backed securities originated and sold by Bear Stearns.

The lawsuit accuses Bear Stearns of a “systematic abandonment of underwriting guidelines” and says that defects among loans sold to investors were largely ignored.

Creating and packaging defective loans for sale to investors helped cause the housing bubble and subsequent collapse.

The JPMorgan complaint was the first action to come out of a working group created by President Barack Obama earlier this year to go after wrongdoing that led to the 2008 financial crisis. JPMorgan, which bought Bear Stearns for US$10 a share in March 2008, said in a statement it would contest the allegations.

The details of the investigation of Credit Suisse were not immediately known. However, lawsuits by pension funds, insurers and others against the bank claim it misrepresented the quality of mortgages underlying securities it created and sold. Loans were alleged to be issued on the basis of inflated appraisals and overstated incomes.

Credit Suisse was a “huge player” in residential mortgage-backed securities until the market collapsed in 2007, according to a lawsuit by Assured Guarantee Municipal Corp. The bank securitised some US$128.5 billion (RM392.5 billion) in residential mortgage loans starting in 2004, the suit said.

The US Securities and Exchange Commission subpoenaed mortgage-related documents from Credit Suisse, bond insurer MBIA Inc disclosed in a court filing in May 2011.

The New York attorney general’s office, Justice Department and SEC declined comment.

Schneiderman said in a statement Tuesday that the Bear Stearns lawsuit was a “template for future actions” against those who “defrauded investors and cost millions of Americans their homes.”

Schneiderman is a co-chair of the Residential Mortgage-Backed Securities Working Group formed to probe the pooling and sale of risky mortgages in the run-up to the 2008 financial crisis.

Obama said he created the group to “hold accountable those who broke the law” and to “help turn the page on an era of recklessness.” — Reuters

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