The headline in Banking360 this morning was “Credit Suisse Pays $5.3B In Possible Last Post-Crisis Deal.” Is this the last “post crisis” deal? Heck no! That would imply that banks and mortgage lenders learned their lesson.
By their very nature, financial institutions are in business to make money. They need to turn a profit. Higher profits means happier shareholders. While many companies find ways to balance profit making with social responsibility, banks have a poor track record.
Let’s examine the Credit Suisse deal and then look at the current legal landscape.
Credit Suisse Fined $5.3 Billion
Credit Suisse ended the year with an agreement to pay the Department of Justice $5.3 billion. The payment settles allegations of pre-2008 wrongdoing in the sales of mortgage backed securities (RMBS).
To date, the “too-big-to-fail” club members have paid about $46 billion for their RMBS violations. That sum includes our historic whistleblower case that helped the government collect $16.67 billion from Bank of America.
By the numbers, Credit Suisse will pay $2.48 billion in civil penalties. An additional $2.8 billion will come in the form of consumer relief. Typically this “soft money” is paid out in the form of mortgage modifications and state programs to help underwater homeowners.
In all the big cases to date, prosecutors say that the banks were knowingly writing bad loans while telling the government and investors that the loans were good. Most home loans are backed by the government. Big banks are “Direct Endorsement Lenders” meaning they can write loans guaranteed by the government. To write these loans, the lender certifies the loan conforms to all federal underwriting guidelines.
Many of their loans didn’t meet minimum standards. They were junk.
Problems occurred not only in underwriting but later when the loans were sold. Home loans are frequently bundled and sold to institutional investors. Pension funds and hedge funds by these bundled RMBS loans. While the banks were knowingly writing shoddy loans, they were then telling prospective investors the loans were solid.
The Bottom Falls Out of the RMBS Market
Credit Suisse and other big lenders were caught with their pants down when the market collapsed in 2008. The loan bundles were soon exposed as junk. Fannie Mae, Freddie Mac and the FHA lost billions when they had to pay off loan guaranties.
Most of the big banks have settled the allegations from the 2008 financial crisis but have banks learned their lesson? Is this the last of the 2008 cases? The answer is “No.”
One of the largest cases still pending involves Barclay’s Bank. The Justice Department filed against Barclays in December, 2016. Barclay’s doesn’t dispute that they may be at fault as much as they claim they are being singled out. Their move is quite risky in that the only two big banks to go to trial since 2008 lost big.
Have Banks Learned Their Lesson?
The real issue we have with the Banking360 article is the characterization that the Credit Suisse is the last of the big bank cases. We have practiced lender liability and whistleblower law for decades. Bad banking practices run in cycles.
True, in the past few years banks have paid billions to settle cases about their shoddy underwriting. Maybe banks have behaved a bit better in the short term but we don’t even believe that.
While it is easy to say banks have learned their lesson, they have not.
Let’s look at Bank of America or Wells Fargo or Barclays. These banks have not been called on the table just once. The underwriting problems of 2006 and 2007 are not isolated. Look at the recent cases for manipulating LIBOR rates or foreign currency exchange manipulation. Look at Wells Fargo and recent allegations that the bank opened 2 million accounts without authorization. Or how about the way banks handled mortgages post crisis? Force placed insurance scandals and refusal to offer loan modifications. All of these allegations are post 2008.
Need for More Whistleblowers
Most of the major post 2008 bank cases were started by whistleblowers. These are concerned men and women who work inside banks. They have first hand knowledge of the wrongdoing.
The federal False Claims Act offers whistleblowers huge cash awards for their inside information. Awards as high as 30% of what the government collects from wrongdoers. (Our bank and mortgage company whistleblower clients have already collected $100 million!)
The Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) also offers big cash awards. FIRREA awards are available for information about many types of bank wrongdoing.
Greed and corruption are not in short supply. Only through whistleblowers, however, do prosecutors have a fighting chance to keep big banks in check. Unfortunately, we suspect Credit Suisse will be back again as will all the other banks. (Let’s not forget that Credit Suisse paid a $2.6 billion criminal fine in 2014. The bank was fined for helping Americans evade taxes with offshore accounts.)
Interested in learning more? Visit our financial fraud whistleblower page for more information or contact us directly. All inquiries are confidential. Attorney Brian Mahany can be reached at or by phone at (414) 704-631 (direct).
MahanyLaw – America’s Whistleblower Lawyers