On Monday, HSH Nordbank AG – a German lender – filed a lawsuit against Bank of America Corporation (BAC) for misrepresentation of documents while selling mortgage-backed securities (MBS). The lodged complaint alleges BofA of presenting modified documents related to the sale of residential mortgage-backed securities (RMBS) worth over $218 million.
The Allegation
Nordbank accused BofA along with its unit, Countrywide Financial, of distortion and blunders in the underwriting standards for mortgage loans that were combined along with the securities.
The case has been filed in the New York State Supreme Court in Manhattan. However, BofA has abstained from commenting on the issue.
Similar Issues
Major U.S. banks are facing a wave of lawsuits claiming to have sold substandard mortgage securities that imploded during the financial crisis. These substantially added to the legal woes of the banks.
This year, similar actions have been taken against other banks – including JPMorgan Chase & Co. (JPM), Citigroup Inc. (C), Morgan Stanley (MS) and The Goldman Sachs Group Inc. (GS).
Other Legal Charges Against BofA
Trouble has been brewing for BofA for quite sometime now. Recently, it was sued by CIFG Assurance North America Inc, a bond issuer, for fraudulent representations and breach of contract over insurance policies tied to RMBS.
The lawsuit was based on CIFG’s five financial guaranty insurance policies pertaining to the two-structure transactions that were arranged by BofA. These were backed by twenty-two risky RMBS.
In addition to this, BofA faces several other charges related to the sale of defective mortgage securities. Earlier in November, investors including Phoenix Light SF Ltd prosecuted BofA along with its unit, Countrywide Financial, over the sale of $261 million worth of flawed residential mortgage-backed securities using misleading statements.
Earlier in September, Phoenix Light had dragged BofA, along with JPMorgan, Goldman as well as Ace Securities – a wing of Deutsche Bank AG (DB) – to court for losses suffered over faulty mortgage-backed securities. JPMorgan and Goldman are encountering a $1.8 billion lawsuit, whereas Ace Securities is facing a $300 million charge. BofA has been sued for losses amounting to $36.6 million over $69.8 million worth of MBS.
Last week, another German lender, DZ Bank AG filed a lawsuit against BofA for misrepresentation of documents while selling MBS. The lodged complaint claimed that the company presented modified documents related to the sale of over $546 million in RMBS.
In Conclusion
Litigation overhangs have been a common problem for major U.S. banks since the financial meltdown. These lawsuits are expected to tarnish the reputation and financials of these banks over time. However, investors and other financial institutions, bearing the brunt of these faulty practices, are expected to be fairly compensated.
BofA currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.
BANK OF AMER CP (BAC): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
DEUTSCHE BK AG (DB): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
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