Legal headwinds pertaining to business malpractices before the 2008 financial crisis continue unabated for banks. As reported by Reuters, the Germany-based lender Commerzbank AG has sued 4 major banks over mortgage losses.
The cases, filed in the U.S. District Court, Southern District of New York, named The Bank of New York Mellon Corporation BK, along with units of Wells Fargo & Company WFC, HSBC Holdings plc HSBC and Deutsche Bank AG DB, as plaintiffs.
The lawsuits alleged that these banks failed to deliver their duties as trustees to billions of dollars worth of mortgage-backed securities (“MBS”), which Commerzbank had purchased prior to the 2008 financial crisis. The banks did not accurately scrutinize the risky MBS, thus leading to significant losses for Commerzbank.
BNY Mellon was a trustee for more than $1 billion of MBS and $1.3 billion of collateralized debt obligations (“CDOs”) – Millstone II CDO – purchased by Commerzbank. The lawsuit stated that BNY Mellon failed “to protect the rights of investors” and did not take necessary actions to safeguard the collateral underlying Millstone II CDO, triggering losses of nearly $750 million.
Commerzbank accused other plaintiffs of similar charges; which have caused it to suffer losses of $290 million in the Wells Fargo case; $640 million for Deutsche Bank and $204 million for HSBC.
We believe such lawsuits will not only continue to adversely impact the banks’ creditability but also lead to a rise in legal costs.
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