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By Michael Shields and Arno Schuetze
ZURICH/FRANKFURT, Dec 23 (Reuters) - Credit Suisse andDeutsche Bank have been hit with a combined penalty of more than$12 billion over the sale of U.S. toxic debt, further hamperingtwo of Europe's leading investment banks as they grapple withfalling profits.
The penalty puts them at a further disadvantage to largerU.S. rivals.
Credit Suisse agreed in principle to pay U.S.authorities $2.48 billion to settle claims it misled investorsin residential mortgage-backed securities it sold in the run-upto the 2008 financial crisis, the Swiss bank said on Friday.
Credit Suisse will also provide $2.8 billion from thesettlement over five years to offset the impact on consumers, itsaid in a statement, adding the deal was subject to negotiationof final documentation and approval by its board of directors.
"Credit Suisse will take a pre-tax charge of approximately$2 billion in addition to its existing reserves against thesematters. This will be taken in our 4Q 2016 financial results,"it added.
The final deal is in line with the $5 billion-$7 billion theU.S. Department of Justice (DOJ) had asked Credit Suisse to payearlier in negotiations, as reported by Reuters on Monday.
The news came after Deutsche Bank agreed to a$7.2 billion settlement with the DOJ over its sale and poolingof toxic mortgage securities.
The agreement in principle, announced by Deutsche Bank'sFrankfurt headquarters early on Friday morning, offers somerelief to the German lender, whose stock was hit hard inSeptember after it acknowledged the Justice Department had beenseeking nearly twice as much.
The deals are the latest the Justice Department has reachedwith major financial institutions since U.S. President BarackObama's 2012 initiative to hold Wall Street accountable formisconduct in the mortgage securities market that helped lead tothe worst financial crisis since the Great Depression.
The department sued Barclays PLC on Thursday oversimilar claims.
Barclays said on Friday that it rejected the DoJ'scomplaint, would "vigorously defend" the case and sought itsdismissal "at the earliest opportunity".
Credit Suisse had paid a $2.8 billion fine in 2014 forhelping wealthy Americans evade tax.
Credit Suisse in November said it had upped litigationprovisions by 357 million francs ($348.29 million), mainly inconnection with mortgage-related matters.
Its shares were indicated 2.4 percent higher in pre-markettrading.
($1 = 1.0250 Swiss francs) (Additional reporting by John O'Donnell, Karen Freifeld,Kathrin Jones and Simon Jessop; Editing by Stephen Coates andAdrian Croft)
