Credit Suisse finalizes $5.3 bln mortgage deal with U.S.

(Adds quote from Justice Department statement, Credit Suisse (IOB: 0QP5.IL - news) ; background)

By Karen Freifeld

NEW YORK, Jan 18 (Reuters) - Credit Suisse formally agreed to pay $5.3 billion to settle with U.S. authorities over claims it misled investors in residential mortgage-backed securities it sold in the run-up to the 2008 financial crisis, the U.S. Department of Justice said on Wednesday.

Zurich-based Credit Suisse will pay a $2.48 billion cash penalty and provide $2.8 billion in consumer relief, including loan forgiveness and financing for affordable housing, the Justice Department said in a statement.

"The bank concedes that it knew it was peddling investments that were likely to fail," Principal Associate Attorney General Bill Baer said in the statement.

Credit Suisse, which had announced the agreement in principle on Dec (Shanghai: 600875.SS - news) . 23, said in a statement it was "pleased to have reached an amicable settlement that allows the bank to put this legacy matter behind it."

Shares (Berlin: DI6.BE - news) of Credit Suisse on the Swiss stock exchange closed down 2.5 percent at 15.28 Swiss francs, a steeper drop than the broader European banking sector.

In a statement of facts, Credit Suisse acknowledged it knew the loans it pooled into securities did not meet underwriting guidelines.

Credit Suisse employees referred to some loans in emails as "complete crap" and " tter complete garbage," the statement of facts said.

In one pool of 10,000 loans the bank bought from Countrywide Home Loans, a small sample showed that 85 percent of the loans violated Countrywide (Frankfurt: A1H56R - news) 's underwriting guidelines or applicable law, the statement said.

Credit Suisse securitized over half the loans in the sample and $1.5 billion worth of other loans in the pool.

"Thanks for working through this mess," one Credit Suisse manager wrote to another about those loans. "If it helps, it looks like we will make a killing on this trade."

The announcement of the Credit Suisse deal came the day after Deutsche Bank (IOB: 0H7D.IL - news) formally agreed to a $7.2 billion settlement over its sale of toxic mortgage securities, also split between cash and consumer relief. Deutsche Bank said in September the Justice Department had initially demanded twice that figure.

The U.S. authorities sued Barclays (LSE: BARC.L - news) and two former executives on Dec. 22 over similar claims. Barclays said it would "vigorously defend" the case.

The settlements and lawsuit stem from an initiative launched in 2012 by U.S. President Barack Obama to hold Wall Street accountable for misconduct in the sale of the securities that helped trigger the worst economic crisis since the Great Depression.

Major U.S. banks, including JPMorgan Chase & Co (Xetra: 850628 - news) and Bank of America Corp, have paid a total of $46 billion to resolve similar claims.

While the Credit Suisse settlement will likely be the last under the Obama administration, other banks under investigation include Royal Bank of Scotland (LSE: RBS.L - news) , Wells Fargo (Swiss: WFC-USD.SW - news) & Co , UBS Group AG (IOB: 0R3T.IL - news) and HSBC. (Reporting By Karen Freifeld; additional reporting by Joshua Franklin in Zurich; Editing by Chizu Nomiyama and Meredith Mazzilli)