UBS Group AG (SIX:UBSG) is currently in discussions with the Mozambican government about potentially forgiving as much as $100 million of debt, as a part of a settlement related to Credit Suisse's role in a financing scandal that rocked the African nation, according to sources familiar with the situation. The Swiss banking giant inherited this legal issue through its acquisition of Credit Suisse earlier this year.
The ongoing negotiations are focused on an out-of-court deal that could be announced by Mozambique’s attorney general as early as next week. If successful, the settlement would help UBS avoid a 13-week long London trial scheduled to begin on Monday.
The scandal, often referred to as the "hidden debt" scandal, revolves around $2 billion in loans arranged by Credit Suisse for a tuna-fishing fleet and coastal security project, which were guaranteed by the Mozambican government. The debt, most of which was concealed from the International Monetary Fund and donors, led to a sovereign default and triggered an economic crisis in Mozambique, one of the world's poorest countries.
Mozambique alleges that Credit Suisse overlooked clear warning signs and its own bankers' corruption in the bond deals made a decade ago. The London trial would still proceed with Privinvest, owned by billionaire Iskandar Safa, as a defendant if a settlement is reached.
In 2021, Credit Suisse agreed to pay nearly $475 million to settle multiple investigations into its role in the scandal. The bank also entered into a three-year deferred-prosecution agreement with the US Justice Department. This proposed settlement follows an October 2021 agreement where Credit Suisse agreed to forgive $200 million of debt owed by Mozambique.
UBS's legal reserves stood at $6.1 billion in the second quarter, with $3.3 billion for UBS and $2.8 billion for Credit Suisse. However, several cases still need to be managed, including a growing investigation into both Credit Suisse and UBS over alleged compliance failures that enabled Russian clients to evade sanctions.
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