On Wednesday,
Bank of America Corporation
(
BAC
) along with
U.S. Bancorp
(
USB
) was sued by a Chicago pension fund. The complaint lodged claims
that these two Wall Street Giants refrained from their duties on
regular basis as the trustees for mortgage-backed bonds of
Washington Mutual Inc.
Chicago-based the Policemen's Annuity and Benefit Fund alleged
that BofA and U.S. Bancorp failed in their roles and did not
accurately administer 41 Washington Mutual trusts backed by home
loans. Due to the ignorance of these banks, the investors suffered
huge losses. U.S. Bancorp succeeded BofA as trustee for these
mortgage bonds.
The pension fund invested in six of the total trusts and faced
significant losses. The trustee's key role is to look after all the
loan documents and distribute payments received from servicers to
the bondholders. But, the fund claimed that both banks were
unsuccessful in holding the loan files. Moreover, they even did not
focus on the completeness of the documents and enforcing Washington
Mutual to repurchase defective loans in those trusts.
The fund has filed the lawsuit in Manhattan federal court and
demanded justice for the investors. Though no arguments has been
received from BofA, U.S. Bancorp spokeswoman accused the complaint
as baseless. According to U.S. Bancorp, the complaint filed
contains various misrepresentations of the bank's role as trustee.
Therefore, U.S. Bancorp will fight for the allegations imposed.
Earlier this month, the federal judge in New York rescinded the
bid filed by
the Bank of New York Mellon Corp.
(
BK
) regarding the dismissal of a lawsuit charged against the bank.
The lawsuit accused the company of failing to perform its
responsibilities as the trustee for investors in Countrywide
Financial Corp. mortgage bonds. The Chicago fund was one of the
plaintiffs.
In July 2008, Countrywide was purchased by BofA. Following this,
most of the operations of Washington Mutual were bought by
JPMorgan Chase & Co
(
JPM
) on its failure.
At the beginning of earnings season, such accusations on Wall
Street biggies will negatively affect the banking stocks and their
reputation in the market. Moreover, it would dent the banks'
financials and loosen up the investors' confidence.
BofA currently retains a Zacks #3 Rank, which translates into a
short-term 'Hold' rating, while U.S. Bancorp retains a Zacks #1
Rank (a short-term 'Strong Buy' rating).
BANK OF AMER CP (
BAC
): Free Stock Analysis Report
BANK OF NY MELL (
BK
): Free Stock Analysis Report
JPMORGAN CHASE (
JPM
): Free Stock Analysis Report
US BANCORP (
USB
): Free Stock Analysis Report
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