Wall Street banking behemoths seem to be still paying for the
risky dealings they undertook before the financial crisis.
Recently, according to
, Battery Park City Authority - a public-benefit corporation -
slapped charges on units of
JPMorgan Chase & Co.
Bank of America Corporation
) over the issuance of auction-rate securities.
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Battery Park City Authority filed the lawsuit in New York State
Supreme Court in Manhattan. The charge was related to
auction-rate securities worth $635 million issued by Battery Park
to finance debt. The auction-rate securities include municipal
bonds, corporate bonds and preferred stocks, with a long-term
nominal maturity for which interest rates are regularly reset
through Dutch auctions.
The accusation was directed at Citigroup Global Markets Inc., the
US-based brokerage and securities arm of Citigroup; J.P. Morgan
Securities Inc. (now known as J.P. Morgan Securities LLC), a
division of JPMorgan; and BofA's Merrill Lynch, Pierce, Fenner
Battery Park City Authority claimed that the plaintiffs
misrepresented facts about the structure and market of the bonds.
Further, by placing their own bids in every auction in which they
were the main broker-dealers, these banking units gave the false
impression of the economy being better than what it was.
Notably, the auction-rate securities market was worth $330
billion before it collapsed during the financial crisis as the
demand subsided. Therefore, investors who held the aforementioned
securities were unable to sell these, which led them to incur
losses. Hence, Battery Park City Authority has sought a
compensation of more than $50 million from the plaintiffs.
Litigation woes related to risky dealings before the financial
crisis have been hounding major U.S. banks in the recent past.
With the rise in legal expenses eating into profitability and the
sluggish pace of economic recovery, the future looks bleak for
these banks. However, investors who suffered losses due to such
dealings are expected to get respite.
Currently, Citigroup carries a Zacks Rank #5 (Strong Sell) while
JPMorgan and BofA carry a Zacks Rank #3 (Hold). A better-ranked
banking major is
SunTrust Banks, Inc.
) with a Zacks Rank #2 (Buy).