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UBS to pay $230M in mortgage securities probe

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UBS agreed to pay $230 million to resolve a New York state probe into the Swiss bank’s marketing and sales of residential mortgage-backed securities before the financial crisis, boosting the state’s recoveries in the investigation to almost $4 billion.

The settlement covers 15 securitizations from 2006 to 2007, which had a total initial principal balance of more than $10 billion, Attorney General Eric Schneiderman said in a statement. The bank sometimes ignored the advice of its own diligence vendors in packaging and selling loans that didn’t conform to its underwriting guidelines, he said.

"We are pleased to have resolved this legacy RMBS matter from 2006 – 2007, for which UBS is fully provisioned," Erica Chase, a UBS spokeswoman, said in an email. "It was achieved with the best interests of shareholders in mind."

A separate Justice Department probe is still pending. The investigations stem from the government’s RMBS Working Group, set up in 2012 to investigate misconduct. Former President Barack Obama named Schneiderman co-chair of the group, which has secured billions of dollars in settlements with some of the world’s biggest banks.

UBS’s New York settlement includes $189 million in consumer relief and $41 million in cash for the state, the attorney general said. Under the deal, the bank admits that prospectus supplements it gave investors didn’t fully explain the bank’s diligence process for sampling tens of thousands of loans, or reveal how many of the loans in a sample weren’t up to snuff, according to the statement.

"The loan pools backing the securitizations have experienced billions of dollars of collateral losses," according to the settlement agreement." As a result, some investors have experienced shortfalls in principal and interest payments, as well as declines in the market value of their certificates."

Royal Bank of Scotland agreed to pay $500 million to settle a parallel investigation by Schneiderman, moving the government-owned lender a step closer to resolving a series of costly U.S. investigations.

JPMorgan and Bank of America previously paid $1 billion and $800 million, respectively, to settle New York’s probes into sales of residential mortgage-backed securities. Citigroup, Morgan Stanley and Goldman Sachs have also settled.

"New Yorkers are still recovering from the housing crash, as communities grapple with the effects of plummeting home values, vacant properties and an affordable housing crisis,” Schneiderman said.

Bloomberg News