The Federal Deposit Insurance Corp. (FDIC) has filed a lawsuit against major banks over the alleged sale of $388 million of risky mortgage-backed securities (MBS) to the failed Colonial Bank. Apart from attorney fees and court expenses, the FDIC is seeking $189 million in damages.
Colonial Bank-based in Montgomery, Alabama failed in August 2009 and was acquired by BB&T Corp. (BBT). At that time, Colonial Bank had nearly $25 billion in assets and the FDIC had estimated the cost to the federal deposit-insurance fund to be $2.8 billion.
The major lenders against whose units the FDIC filed the lawsuit include biggies like JPMorgan Chase & Co. (JPM), Bank of America Corporation (BAC), Citigroup Inc. (C), Wells Fargo & Company (WFC), Deutsche Bank AG (DB), Credit Suisse Group (CS), HSBC Holdings plc (HBC), UBS AG (UBS), Ally Financial Inc. and The Royal Bank of Scotland Group plc (RBS), among others. The FDIC has alleged that the lenders distorted the facts related to the MBS they sold to Colonial Bank.
Moreover, the FDIC accused the banks of not disclosing authentic facts related to the quality of the underlying assets while selling risky MBS to Colonial Bank. This also included distortion of loan-to-value ratios that were based on the inflated property values. Further, the fact that a large number of these properties had second mortgages was also concealed.
The above-mentioned lawsuit is almost identical to the one that was filed by the U.S. Federal Housing Finance Agency (FHFA) against approximately a dozen big banks. The FHFA sued major banks for infringing commitments on the quality of about $196 billion MBS sold to Fannie Mae (FNMA) and Freddie Mac (FMCC) during the housing bubble.
The FDIC’s action comes as a major blow to the big banks that are already facing numerous litigations related to the sale of risky MBS. However, the investors and other financial institutions which suffered as a result of these faulty practices are expected to get a breather.
BANK OF AMER CP (BAC): Free Stock Analysis Report
BB&T CORP (BBT): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
CREDIT SUISSE (CS): Free Stock Analysis Report
DEUTSCHE BK AG (DB): Free Stock Analysis Report
FREDDIE MAC (FMCC): Free Stock Analysis Report
FANNIE MAE (FNMA): Free Stock Analysis Report
HSBC HOLDINGS (HBC): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis Report
ROYAL BK SC-ADR (RBS): Free Stock Analysis Report
UBS AG (UBS): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis Report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment