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
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