CS Credit Suisse Group

By John Letzing 

ZURICH-- Credit Suisse Group AG has become the latest big European bank to reach a settlement with U.S. authorities over toxic mortgage securities sold in the run-up to the financial crisis, in a deal worth roughly $5.3 billion.

Zurich-based Credit Suisse, which was one of several European banks working toward a settlement of the mortgage securities issue, said on Friday it will pay a penalty to the Justice Department of $2.48 billion, in addition to consumer relief payments of about $2.8 billion to be made over five years. The deal relates to business conducted primarily between 2005 and 2007, the bank said.

The total settlement amount is higher than analysts had been expecting, with consensus estimates closer to roughly $2 billion. The deal marks a significant milestone for Credit Suisse, however, as it seeks to wipe its legal slate of legacy issues clean and press ahead with a continuing restructuring under Chief Executive Tidjane Thiam--who took the helm in the summer of last year.

Shares of Credit Suisse rose nearly 2%.

The settlement marks yet another in a flurry of deals reached by the outgoing Obama administration, which is seeking to wrap up cases against big banks stemming from the financial crisis. As a result of its deal, Credit Suisse said it would take a $2 billion charge to its results in the current quarter.

The announced arrangement comes on the heels of a $7.2 billion deal reached by Deutsche Bank AG, to settle the German bank's own mortgage securities probe in the U.S. Deutsche Bank's deal includes a $3.1 billion penalty, and $4.1 billion in consumer relief payments.

In addition, the U.S. has filed a suit against Barclays PLC, alleging that the bank fraudulently sold more than $30 billion of mortgage securities. Other European banks, including UBS Group AG, have yet to reach related settlements with U.S. authorities.

A group of U.S. banks, including J.P. Morgan Chase & Co. and Citigroup Inc., have settled their own toxic mortgage-securities probes in recent years.

While Credit Suisse's pursuit of a settlement on the mortgage securities issue was overshadowed by that of Deutsche Bank, following a report earlier this year in The Wall Street Journal that the German bank had received an opening bid from U.S. authorities of $14 billion to close out the matter, the reckoning comes at a sensitive time for the Swiss lender.

Analysts and investors have scrutinized Credit Suisse's capital levels, as the bank, like other financial firms, has grappled with declining revenue due to low and negative interest rates, and turbulent markets that have spooked wealth management clients.

Credit Suisse, which has been slashing costs and head count as part of its restructuring, said earlier this year that it had set aside about $2 billion in legal provisions to cover issues including the mortgage securities probe.

In addition to the federal investigation, Credit Suisse also faces an investor fraud lawsuit in New York state, related to the bank's sale of mortgage securities before the crisis.

Last year, Credit Suisse raised about $6 billion in fresh capital to help jump start Mr. Thiam's restructuring bid, which has involved dividing the bank into several geographic units and focusing more on wealth management operations, as opposed to investment banking businesses.

In addition, Credit Suisse is planning a partial, initial public offering for its Switzerland-based unit, which the bank hopes will help to raise as much as 4 billion Swiss francs ($3.9 billion) in new capital.

Write to John Letzing at john.letzing@wsj.com

(END) Dow Jones Newswires

December 23, 2016 03:59 ET (08:59 GMT)

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