German-based Bayerische Landesbank (BayernLB) has sued
) over the losses that it incurred from investments in risky
mortgage backed securities (MBS). BayernLB alleged that Barclays
made false representations while selling MBS worth more than $274
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Last Friday, BayernLB filed the case documents in New York State
Supreme Court in Manhattan. The firm charged Barclays of issuing
misleading statements regarding underwriting standards that were
used while issuing MBS.
BayernLB also alleged that Barclays' offer documents contained
untrue statements and omissions regarding the risks involved in the
investments. These led to huge losses as the market value of MBS
continued to plummet.
Apart from Barclays, BayernLB filed similar lawsuits against many
other large banks including
Bank of America Corporation
Deutsche Bank AG
JPMorgan Chase & Co.
) over the past year. The firm is seeking damages related to over
$4 billion invested in risky MBS.
Additionally, Barclays has been on sticky grounds as it has been
accused by many financial institutions of misrepresenting documents
related to MBS. Most of these are related to the sale of MBS during
the height of the housing bubble that later led to the financial
crisis in 2008.
In June, Landesbank Baden-Wuerttemberg and Sealink Funding Ltd., in
two separate lawsuits, accused Barclays for losses over the
investments in MBS. Landesbank Baden-Wuerttemberg alleged that the
company made false claims in the offer documents while selling MBS
worth $204.6 million. Similarly, Sealink stated that Barclays
omitted material related to securities valued at $604.1 million.
Further in May, Barclays was sued by DZ Bank AG over $133.3 million
in residential MBS and accused the company of fraudulent and
negligent misrepresentation. Likewise in April, Barclays was
dragged to the court by HSH Nordbank AG, for misrepresenting the
credit quality of loans underlying MBS.
We believe that these litigations will negatively impact Barclays'
financial credibility going forward. However, the investors who
were duped of their hard earned money will get some respite.
Barclays currently retain a Zacks #3 Rank, which translates into a
short-term Hold rating.