Citi Sees off Woori Lawsuit Threat
A lawsuit filed by South Korea-based Woori Bank – a unit of Woori Finance Holdings Co. Ltd. (WF) – against Citigroup, Inc. (C) was dismissed by a U.S. District judge in Manhattan. The lawsuit was associated with Citi’s sale of collateralized debt obligations (CDOs) supported by risky mortgage-backed securities (:MBS) to Woori Bank prior to the 2008 financial crisis.
The lawsuit accused Citi of creating and selling CDOs that comprised mortgage-backed securities. Moreover, Woori alleged that Citi issued misleading statements related to the credit rating associated with these RMBS and had concealed the associated risks. As a result, these induced investments. The lawsuit sought damages worth $95 million.
However, the District Judge found the supporting evidence presented by Woori to be weak, and hence ruled in favor of Citi. However, the judge gave the South Korean bank permission to file a revised complaint.
Similar to the dismissal of the abovementioned lawsuit, another legal charge brought by Woori against The Royal Bank of Scotland Group plc (RBS) was rejected by a U.S. District judge in Manhattan in Dec 2012.
Earlier, in February this year, Woori suffered similar fate as a U.S. District judge dismissed a lawsuit filed against Merrill Lynch – a unit of Bank of America Corporation (BAC). The case against BofA was rescinded as it failed to meet the 3-year deadline of filing the lawsuit after incurring the losses under the South Korean law. The District judge rejected the plea even after Woori argued that the 3-year time period began following the publication of a report by the U.S. Financial Crisis Inquiry Commission on Jan 27, 2011.
As for Citi, the lawsuit brought some relief. The company has been facing a string of lawsuits and investigations pertaining to mortgage-backed securities, some of which were settled. Even though the settlement of these charges was a burden on Citi’s expenses, but they reduced the company’s litigation overhang to some extent.
Citi currently carries a Zacks Rank #3 (Hold).
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