The Financial Services Authority (FSA) has fined the UK arm of Credit Suisse £5.6m for mis-pricing some asset-backed securities.

The breaches involved Credit Suisse’s Structured Credit Group (SCG) which specialised in complex, high-risk financial products.

The FSA said the bank had failed to recognise for five months that some of SCG’s valuations were wrong.

Credit Suisse said it had commissioned a “detailed review” of the causes.

Risk controls ‘imperative’

Credit Suisse announced on 19 February – a week after it issued its financial results for 2007 – that it had identified pricing errors by a small number of traders and that it was re-pricing certain asset-backed securities.

“The [Credit Suisse] subsidiaries here failed to… control the potentially high risk combination… of exotic products, opaque valuations and high leverage” Margaret Cole, FSA director of enforcement

As a result of the re-pricing, it announced a write-down in the value of its revenues by $2.65bn (£1.4bn).

“This incident was unacceptable to me and the executive board,” said Credit Suisse Group chief executive Brady W Dougan.

“Our overall control framework remains sound and we have taken actions to implement a remediation programme to address the findings of our internal review,” he added.

The £5.6m fine is not the largest the FSA has imposed, but the financial regulator said it reflected its policy of imposing higher penalties to achieve “credible deterrence”.

“It is imperative, particularly in more challenging financial conditions, that firms have in place appropriate systems and controls to manage their risks,” said the FSA’s director of enforcement Margaret Cole.

“The subsidiaries here failed to take appropriate steps to control the potentially high risk combination in the Structured Credit Group’s holdings of exotic products, opaque valuations and high leverage,” she said.

News reported by The BBC

The Financial Services Authority (FSA) has been accused by mortgage lenders of being “unfair” in its recent criticism of their repossession policies.

Last week the regulator warned it would take action against lenders who were too aggressive to customers in arrears.

But the Council of Mortgage Lenders (CML) said the FSA was wrong to suggest the whole industry was at fault.

The FSA replied that potential problems with repossession policies were found with all types of lender.

“There were issues discovered across the piece with all lenders which is why the warning was addressed to the whole market place,” said an FSA spokeswoman.

Unhappy

The unusual public spat between the two bodies hinges around a press release published on 5 August.

“In tarnishing the whole industry with the same dirty brush, is the regulator treating lenders fairly?” CML

In it, the FSA published the findings of a “thematic review” of how lenders deal with customers who are behind with their mortgage repayments and thus are in danger of losing their homes.

The regulator did acknowledge that the aggressive approach of which it disapproved was not typical of mainstream lenders, but was more usually found among specialist lenders.

It found that they were too keen to repossess at the first sign of a customer’s financial problems.

But the CML is very unhappy about the presentation of the FSA’s findings, which it said were confusing to lenders and in danger of misleading the public.

“The key message given to media and the industry was that lenders are failing to treat customers fairly,” the CML responded in its latest fortnightly newsletter.

“But in tarnishing the whole industry with the same dirty brush, is the regulator treating lenders fairly?”

“To publish a report in such ambiguous terms is unfair and confusing for the majority of lenders who are making significant efforts to comply [with industry rules],” it added.

Payment problems

Recent figures have shown that repossessions are on the rise, going up by 41% in the first half of the year, and are expected by lenders to reach 45,000 in total this year.

Although that would be a level of repossession that is far lower than in the housing recession of the early 1990s, there are many more potential problem cases in the pipeline.

The CML estimates that by the end of the year there may be 170,000 people who are more than three months behind with their repayments.

The FSA responded by repeating its earlier conclusions about mainstream mortgage lenders.

It said it had found that some of them could do more to help with their customers’ arrears; levied unfair charges on customers; and didn’t pay enough attention to the way debt recovery agencies or bailiffs acted on their behalf.

News reported by The BBC

Mortgage firms should treat customers fairly as the number of homeowners facing arrears and repossessions rises, the UK’s financial watchdog has said.

The Financial Services Authority’s comments came as it reported a 40% rise in new cases of repossessions in the first three months of 2008 to 9,152.

The number of home loans in arrears rose by 15% in the same period.

The watchdog said a flexible approach was needed from lenders when recovering these arrears.

“More people are struggling to meet their mortgage payments and it is vital that firms treat them fairly,” said Lesley Titcomb, of the FSA.

“This means paying attention to their individual circumstances and not repossessing their homes when there may be an alternative solution. Repossession has to be the last resort.”

Mortgage squeeze

The figures, drawn from data provided by regulated mortgage lenders and administrators, also gives more evidence of the squeeze on the availability of mortgages.

Repossessions have risen, according to figures across the industry

New lending peaked in the third quarter of 2007, but the share of new lending being used for loans for house purchases has fallen since then, the data shows.

The proportion of mortgages where homeowners borrowed more than 90% of a home’s value fell from a peak of 15% of new lending in 2007 to 10% in the first three months of 2008.

But the proportion of borrowers with a poor credit history has fallen.

“We believe these new figures paint a terrifying picture showing real people – hard-working families, young first-time buyers and even renters – all living in the shadow of repossession and ultimately homelessness,” said Adam Sampson of charity Shelter.

The FSA should tackle “merciless mortgage lenders”, he added, as there was concern that some lenders might try to pursue a repossession rather than try to work out a solution.

‘Fair treatment’

It is the first time that the FSA has published figures in this way.

The rate of repossessions is not on the same scale as in early 90s

Government spokesman

It called on specialist lenders not to operate a “one size fits all” approach that was too focussed on recovering arrears without taking account of the borrower’s circumstances.

It added that some were too quick to take court action and needed to improve training on dealing with mortgage arrears.

The watchdog also followed up on a review of 250 firms offering mortgage advice.

Better evidence of whether customers were able to afford repayments was needed, the FSA found.

Seven small mortgage advisers are also likely to face enforcement action after the review.

Repossessions

The Council of Mortgage Lenders (CML) says that there are 11.8 million mortgages in the UK that are currently being paid off.

However, it has predicted that, with people feeling the pinch, there will be 45,000 repossessions in 2008, up from 27,100 in the previous year.

The growing numbers are partly the result of rising house prices in recent years, which gave lenders an interest in encouraging people to sell.

With high mortgage repayments, and rising household food and fuel bills, the number of people missing payments on their home loans is rising.

The Ministry of Justice said in May that the number of people facing repossession orders – an early stage of the repossession process – rose by 17% in the first quarter of the year.

There were 27,530 orders in the quarter, up from 23,438 during the same period in 2007.

The government said it was doing more to help those in financial trouble, such as extending free debt advice services and free legal representation at county courts.

“The rate of repossessions is not on the same scale as in early 90s. But that doesn’t mean we don’t recognise the problems that some borrowers are facing because of global economic pressures,” said a Department for Communities and Local Government spokesman.

There was also some better news for new borrowers as a number of the major lenders have also cut their interest rates for new fixed-rate mortgages in recent days.

News reported by The BBC