Institutional investors led by BlackRock and Pacific Investment Management Co (Pimco) are suing units of six banks including Deutsche Bank and US Bancorp in a bid to recoup losses incurred on mortgage-backed securities.
The lawsuits, filed in New York state court and focusing on more than 2,000 mortgage bonds issued between 2004 and 2008, allege that the units of US Bank, Citibank, Deutsche Bank, Wells Fargo, HSBC and Bank of New York Mellon breached their duties to investors as trustees overseeing more than US$2 trillion in bonds.
The investors are seeking damages for losses on the bonds that have surpassed US$250bn, according to reports. The lawsuits by BlackRock and Pimco funds claim the banks breached their duty to bondholders by failing to force lenders and bond issuers to repurchase loans that fell short of the quality standards described to buyers when the securities were sold.
The wording of the complaint against Citibank states that trustees were aware of an “industry-wide abandonment of underwriting guidelines” for the loans and “pervasive and systemic deficiencies infecting the trusts’ collateral”.
The lawsuits follow a New York appeals court ruling last December that determined the six-year statute of limitations to bring breach of contract cases against the issuers of mortgage securities began when the transactions were executed. The ruling means that for many cases it is too late to sue. Bondholders have retorted that the limitation should begin when a repurchase demand is made.
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