More bank stock declines and less lending could be in store as financial institutions face another massive round of lawsuits. The Federal Housing Finance Agency sued 17 banks on Sept. 2, alleging that the financial institutions committed securities violations in the lead-up to the recent financial crisis.
The lawsuit concerns sales by the institutions to Fannie Mae and Freddie Mac of almost $200 million in residential private-label mortgage-backed securities that later collapsed. The lawsuit also names some of the banks’ officers and unaffiliated lead underwriters.
In addition to the securities violations, the lawsuits allege that the banks made negligent misrepresentations and failed to do adequate due-diligence and follow standard underwriting procedures when offering the mortgage-backed securities.
The complaints were filed in both federal and state courts (New York and Connecticut) against 17 banks, including major financial institutions like Bank of America, Barclays, Citigroup, Countrywide, Credit Suisse, Deutsche Bank, General Electric, Goldman Sachs, HSBC, JPMorgan Chase, Merrill Lynch, Morgan Stanley and others. The lawsuit is substantially similar to the suit filed against UBS Americas earlier this year.
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Fannie Mae and Freddie Mac were placed into conservatorship in 2008, right after the subprime mortgage crisis made public waves. Under the conservatorship, the FHFA has control over the government-sponsored enterprises and has the power to bring lawsuits on their behalf, as it did in this case.