) became the latest addition to the list of banks sued by
Sealink Funding over alleged misrepresentations linked to the sale
of residential mortgage-backed securities (RMBS) which lost a large
chunk of their value during the economic downturn of 2008. Sealink,
which was formed as a placeholder entity to hold the riskiest
assets accumulated by the German Landesbank Sachsen group,
filed a lawsuit against the country's third largest bank in terms
of assets claiming damages over RMBS worth $513 million.
Competitors JPMorgan Chase (
), Bank of America (
), Goldman Sachs (
), Morgan Stanley (
), Deutsche Bank (DB) and UBS (UBS) are other global banking
giants who have seen similar lawsuits filed against them by Sealink
over recent months. The timing of this lawsuit, however, is what
poses a bigger problem for Citigroup which is still coming to terms
with the top-level management changes it underwent after the abrupt
resignation of CEO Vikram Pandit and COO John Havens last
We maintain a
$37 price estimate for Citigroup's stock
, which is in-line with current market price.
See our full analysis of Citigroup
Evident from the list below, Sealink has been going after all
the major banks in what looks like a bid to pass off as much
of its mortgage-related losses during the economic downturn to them
Mortgage-Related Lawsuits Continue to Flood the Banks: BoA, JPM
). The following is a compiled list of the major banks that the
institutional investor has filed lawsuits against within a span of
one year along with the value of mortgage-backed securities it
bought from each bank between 2005 and 2007.
|Bank of America
Note: The figure for JPMorgan Chase includes the lawsuit
against Bear Sterns by Sealink, and that for Bank of America
includes the lawsuits against Merrill Lynch and Countrywide
Financials by Sealink.
Sealink is one of the numerous institutional investors who took
a cue from the Federal Housing Finance Agency's (FHFA) series of
lawsuits against the banking bigwigs, and forms part of the huge
potential threat to the banks because a loss for them against any
of the institutional investors will snowball into losses in nearly
all these lawsuits because of their identical claims. This
could result in significant settlement costs and/or penalties for
the banks' investment banking operations which will consequently
drag down margins for the business.
It must be mentioned here that in a number of these lawsuits,
Sealink is pressing for damages more than the principal value of
the securities they purchased - holding the banks responsible for
misleading it into making such huge investments in the first place.
While definitely a threat, this rather questionable recourse sought
by Sealink has allowed banks to hit back at it - evident from the
following statement by Bank of America spokesman Lawrence
Grayso late last year: "[Sealink Funding] appears to be another
sophisticated investor looking for someone to blame for investment
losses suffered due to a downturn in the economy."
Submit a Post at Trefis Powered by Data and Interactive
Drives a Stock at Trefis