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Financial Stocks Taking Broad Hits; Goldman Loses Bid to Separate CDO Investors From Class Action

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Financial stocks are extending their losses in afternoon trade, with the NYSE Financial Sector Index declining 1.6% and the S&P Financial 100 Index sliding more than 2.0%.

In company news, shares of Goldman Sachs Group Inc ( GS ) were lower Thursday, with a federal judge in New York granting class-action status to investors accusing the bulge-bracket brokerage of fraud in the sale of debt linked to subprime mortgages while it was betting against those securities prior to 2008 financial crisis.

U.S. District Judge Victor Marrero in Manhattan rejected the brokerage's bid to have cases over its sale of collateralized debt obligations (CDOs) be tried separately, ruling they met all the criteria needed to be considered a class. The plaintiffs are led by Dodona I LLC, a New York-based hedge fund, and also includes other investors who purchased various series of GS's Hudson Mezzanine Funding securities.

According to the court document, Dodona alleges GS created the Hudson CDOs as part of a scheme to decrease its exposure to subprime debt while shorting those notes - betting they would further fall in value - at the expense of investors who bought the CDOs.

Dodona purchased a total of $4 million of Hudson Mezzanine notes in February 2007. The notes quickly lost value, however, and Moody's Investor Services in September 2007 downgraded its credit rating for all $286 million of the notes, also placing them on negative walk for future downgrades.

GS shares were down 2.4% in recent trade at $169.52 apiece, falling as low as $169.02 during the session.

In other sector news,

(-) EWBC, (-1.3%) Drifts off 52-week high set during Wednesday's session after reporting Q4 earnings of $0.55 per share, up 12% from year-ago levels and in-line with estimates. Sees Q1 EPS of $0.49 to $0.51, trailing consensus by at least $0.03.

(-) BXS, (-1.8%) Announces deal to acquire Temple, Texas-based Central Community Corp. for an undisclosed sum.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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