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UBS Group's (UBS) Bid Dismissed in U.S. Government Lawsuit

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On Tuesday, a federal judge rescinded the bid filed by Swiss Bank UBS Group AG (UBS - Free Report) to dismiss a U.S. government lawsuit. The Department of Justice (DoJ) has sued the bank for making investors suffer "catastrophic" losses in residential mortgage-backed securities (RMBS) sold prior to the 2008 financial crisis.

Per U.S. District Judge Margo Brodie in Brooklyn, NY, the DoJ has accused UBS Group for intentionally defrauding investors who purchased securities backed by subprime and other risky loans worth more than $41 billion (£31.96 billion) in 40 offerings from 2005 through 2007.

Further, accusing the bank, the Justice Department has opined that the loans were securitized despite the knowledge of "severely deteriorating" underwriting standards of lenders. Notably, Countrywide Home Loans, American Home Mortgage, Fremont Investment & Loan, IndyMac and New Century were among the now-defunct lenders.

UBS Group’s lawyer has refrained from commenting on the decision.

Though no specified damages were disclosed by the government in the November 2018 lawsuit, investors "lost many billions of dollars, with substantially more in losses projected during the remaining life of the deals," it noted.

Per the DoJ, UBS Group’s act has violated a 1989 law which makes the bank viable for civil penalties as much as the losses suffered by others due to such violation. However, no merits were decided by Brodie for the government's case.


Banks across the globe have been facing heightening scrutiny for their business practices. Many of these firms have paid billions of dollars as fines and compensation to settle lawsuits and probes. Several investors have lost their hard-earned money as a result of such business malpractices.

Various global banks, including Citigroup (C - Free Report) , Goldman Sachs (GS - Free Report) and The Royal Bank of Scotland Group plc (RBS - Free Report) , have resolved claims in lawsuits over RMBS. Such settlements help restore investors’ confidence in law-enforcement agencies. Moreover, it reduces the existing litigation burden of banks.

UBS Group AG currently carries a Zacks Rank #2 (Buy). Shares of the company have gained around 1.7% over the last six months, as against the 1.1% decline recorded by the industry. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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