United States' third largest bank
) is on shaky grounds again as it has been sued by
) in connection with the sale of securities that were allegedly
backed by low-quality mortgages. The mortgage backed securities
(MBS) were worth $1.08 billion.
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These securities were backed by 4,946 mortgage loans. U.S. Bank
has accused Citi of violating the contract with the buyers of the
securities. U.S. Bank is seeking compensation for the damages,
though no amount has been specified. Moreover, it seeks to obtain
an order requiring Citi to repurchase the faulty loans.
As per the trustee, the loans carried a high default rate. Due to
this, U.S. Bank incurred losses of over $354 million. Further, a
forensic review was done on 1,604 of the mortgages underlying the
2007 investment. The review disclosed that approximately 79% of
the loans became delinquent.
Similar Charges Earlier
Washington Mutual Inc. - acquired by
JPMorgan Chase & Co
) in 2008 - and Citigroup have been legally charged in connection
with issues arising out of the sale of MBS by Integer Program LLC
for incurring huge losses from mortgage loans.
Further, many other global giants, including
), are battling similar lawsuits related to MBS.
The mounting litigation charges against Citi are expected to
exhaust its financial resources, which otherwise could have been
channeled toward the company's growth initiatives. Moreover, it
is apprehended that litigation overhangs might tarnish the
Citi currently carries a Zacks Rank #3 (Hold).