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UBS in settlement talks with SEC over mortgage-bond deal

Switzerland's lender UBS is engaged in settlement discussion with the US Securities and Exchange Commission (SEC) over charges that the lender deceived investors during the sale of over $748m in notes linked to a collateralized-debt obligation created in 2007.

The lender created a mortgage-bond deal that soured during the financial crisis of 2008.

Sources familiar with the matter were quoted by the Wall Street Journal as saying that the probe is in its late stages and though settlement talks with the bank are currently going on, an agreement may not happen imminently.

CDOs are securities that were tied to the pools of mortgages and other debts sold in pieces of varying risks and returns.

The lender said in a securities filing that it is in talks with the SEC with regard to UBS’s structuring and underwriting of one CDO in 2007, reported the publication.

Apart from this, the US watchdog is investigating the role of a former executive at bond insurer ACA Financial Guaranty, which acted as collateral manager for the deal.

ACA ABS 2007-2 is one of three CDOs at the center of a hedge-fund firm’s lawsuit against UBS. Pursuit Partners slammed the Swiss lender for selling CDO notes after knowing that it would soon face credit-rating downgrades from Moody’s Investors Service MCO.

Due to the downgrades, the value of those CDO notes declined sharply, subsequently leading to losses for the hedge fund of $35.5m.

In December 2012, the bank agreed to pay CHF1.4bn ($1.53bn) in fines and disgorgement to the US, UK and Swiss authorities to settle the charges pertaining to Libor rate fixing scandal.