Citi Sued by PIMCO and Others over Toxic Mortgages
Legal troubles continue to mount at Citigroup Inc. C. The New York-based banking giant has been hit with a lawsuit by Pacific Investment Management Company (PIMCO) and other investors over the bank’s alleged failure in monitoring toxic securities backed by over $13.8 billion of mortgage loans, which resulted in significant losses.
Per the complaint filed on Tuesday in a New York state court in Manhattan, Citigroup’s subsidiary – Citibank NA – failed to discharge its duties as a trustee for the 25 private-label trusts which dates from 2004 to 2007. The company ignored "pervasive and systemic deficiencies" regarding the manner in which the underlying loans were underwritten or serviced.
PIMCO – the German insurer, Allianz SE’s AZSEY unit – and other investors stated in the complaint, “Citibank knew that the pools of loans backing the trusts were filled with defective mortgage loans that materially breached seller representations and warranties.” The loans’ "abysmal performance" was evident with huge defaults, delinquencies and foreclosures.
Apart from PIMCO, other plaintiffs include Prudential Retirement Insurance & Annuity Co. and Netherlands based- Aegon NV’s U.S. unit, Transamerica Corp. The several claims of the lawsuit, which is seeking class-action status, include breach of contract and breach of fiduciary duty. Also, the plaintiffs are seeking an unspecified amount of damages.
Notably, PIMCO has sued other banks over similar allegations regarding other mortgage trusts.
Investors who suffered losses due to poor underwritten mortgages in the wake of the financial crisis, in recent years have focused on trustees claiming that the latter failed to force lenders and bond issuers to repurchase those loans. Since the financial crisis while several major U.S. banks have shelled out billions of dollars in legal and regulatory settlements and repurchase claims, the latest suit is yet another warrant that banks cannot get away with their past misconducts.
Citigroup currently carries a Zacks Rank #4 (Sell). A couple of better-ranked stocks in the finance space include Suffolk Bancorp SUBK and Middlefield Banc Corp. MBCN each sporting a Zacks Rank #1 (Strong Buy).
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