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  • uncle.bubs uncle.bubs Dec 15, 2009 6:53 AM Flag

    Credit Suisse Sued By MBIA Over Mortgage-Backed Securities

    Credit Suisse Sued By MBIA Over Mortgage-Backed Securities
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    By Patricia Hurtado


    Dec. 15 (Bloomberg) -- A Credit Suisse Group AG unit was accused in a lawsuit by MBIA Insurance Corp. of making fraudulent misrepresentations about mortgage-backed securities, causing the insurer to pay more than $296 million in claims.

    The complaint against Credit Suisse Securities (USA) LLC, filed yesterday in New York State Supreme Court in Manhattan, also names as defendants two other units of the bank, DLJ Mortgage Capital Inc. and Select Portfolio Servicing Inc.

    Credit Suisse made “pervasive and material misrepresentations” about a mortgage-backed securities transaction that was sponsored, marketed and serviced by the Credit Suisse units and insured by MBIA, according to the complaint.

    The transaction, involving thousands of residential mortgages in a pool later transferred to a trust formed to issue securities that were to be paid down based on the cash flow from the loans, closed in April 2007, said Armonk, New York-based MBIA Insurance, a unit of MBIA Inc.

    “CS Securities fraudulently induced MBIA to participate in the transaction,” MBIA said in the complaint. MBIA said the bank claimed it had “used certain strict underwriting guidelines to select the loans sold into the transaction when in fact it did not.”

    Bruce Corwin, a Credit Suisse spokesman, declined to comment.

    ‘Institutional Pedigree’

    Credit Suisse Securities pointed to its “strong institutional pedigree” while addressing the novelty of the transaction and touted its “due diligence” on the loans, MBIA said. The insurer also said that, at the time, Credit Suisse was the second-largest commercial bank and “viewed as a pioneer in the development of the residential mortgage-backed securities market.”

    Since the transaction closed, the securitized loans have defaulted “at a remarkable rate,” MBIA said.

    “Through Oct. 31, 2009, loans representing more than 51 percent of the original loan balance, or approximately $464 million, have defaulted and been charged-off, requiring MBIA to make over $296 million in claim payments,” MBIA said.

    MBIA said that a review of the defects of the loans included in the transaction show they were “systematically originated with virtually no regard for the borrowers’ ability or willingness to repay their obligations.”

    The case is MBIA Insurance Corp. v. Credit Suisse Securities (USA) LLC, 603751/2009, New York State Supreme Court (Manhattan).

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    • Fools often use this type of logic...Warburg, Whitman, Whatever. They have failed to this point, yet fools can't grasp that aspect of the information.

      Also, you will never know Warburg's overall position, which may be hedged, possibly even neutral. The chances of their strategy being similar to the hopeful Yahoo fool is fairly low.

      And even if Warburg has strong beliefs that MBIA will recover, you need to consider this:

      1. They started buying at 30, and its not as if they are buying much more as MBIA has cratered. Again, for all you know they have hedged as it cratered.

      2. They may have been betting on the success of the alleged fraudulent restructuring. That is now in doubt. If it gets remedied or reversed that could blow their investment thesis.

      Fools finding inspiration in distant places they know little about (Warburgs investment strategy) is pretty common...I am not persuaded by this logic.

      jbd.

    • jbd,

      <I really don't know what is dominating the negative sentiment, but its clear that folks are continuing to shun MBIA.>

      The insiders are steadily buying MBI.
      Warbug Pincus owns 17%. I don't think these folks are shunning MBIA.

      specsit.

      I am long MBI.

    • You're close. Most of America's large financial firms have been committing fraud routinely for a number of years - that includes both CS and MBIA.

      Judges know this. A defense which acknowledges breaches of contract is not some kind of crazy defense, even though the foolish mind can't wrap around it.

      The issues are:

      a) what breach occurred ?

      b) what is the appropriate remedy for the breach ?

      c) are there mitigating factors which would cause a judge or jury to provide a remedy other than the contractually identified remedy, in this case put backs or swaps ?

      Experienced attorneys would have a difficult time predicting the outcomes of these cases, do you really think that a fool on Yahoo declaring a high likelihood of 100% payouts is to be taken seriously ?

      Anyway, just examining it all from a market response perspective, it is clear that the millions of participants in the markets do not view MBIA's situation positively, notwithstanding your personal view of their fabulous court victories to come.

      I have no idea whether the problems are:

      a) future municipal defaults

      b) reversal or remedy on alleged fraudulent restructuring

      or

      c) skepticism of timing or outcome on lawsuits....

      I really don't know what is dominating the negative sentiment, but its clear that folks are continuing to shun MBIA.

      jbd.

    • Apparently Credit Suisse has been involved in other illegal activities, too:

      http://www.nytimes.com/2009/12/17/business/global/17suisse.html?partner=yahoofinance

      http://dealbook.blogs.nytimes.com/2009/12/16/credit-suisse-pays-536-million-to-settle-us-inquiry/?partner=yahoofinance

      What makes you think they have any credibility in the MBIA lawsuit? Credit Suisse's recent track record speaks for itself.

 
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