UBS faces massive RMBS claims in US mortgage market
In the first few sentences of the latest earnings report from Swiss bank UBS AG (UBS), the firm reports that it is one of the most capitalized banks in the world. However, deep within the report is the declaration that UBS is involved in the early stages of multitudinous lawsuits involving its role in residential mortgage bank securities. "From 2002 through about 2007, UBS was a substantial underwriter and issuer of U.S. RMBS," the company said. "UBS has been named as a defendant relating to its role as underwriter and issuer of RMBS in a large number of lawsuits relating to approximately $45 billion in original face amount of RMBS underwritten or issued by UBS." The bank said the lawsuits are, so far, not widely reported, and many are either in the discovery phase or filed with a motion to dismiss. The majority of the RMBS were originated from third parties, UBS said. The bank then packaged the mortgages into a securitization trust and made representations and warranties about the loans. Of the original amount of RMBS at issue in these cases, approximately $9 billion was issued in offerings in which a UBS subsidiary transferred underlying loans, according to the company, and $36 billion was issued by third parties in securitizations in which UBS acted as underwriter. The Federal Housing Finance Agency, Fannie Mae and Freddie Mac are bringing another $7.5 billion in RMBS lawsuits against UBS. UBS said that the nature of its financial services to clients mean that it is operating in an environment that carries significant legal risks. The RMBS lawsuits make up only a portion of the total litigation UBS faces. The Swiss bank also gave an indication on how it is expecting the lawsuits to end. "In certain circumstances, to avoid the expense and distraction of legal proceedings, UBS may, based on a cost-benefit analysis, enter into a settlement even though denying any wrongdoing," according to the company. Write to Jacob Gaffney. Follow him on Twitter @jacobgaffney.