Two Wall Street Biggies Sued

On Wednesday, Bank of America Corporation (BAC - Analyst Report) along with U.S. Bancorp (USB - Analyst Report) was sued by a Chicago pension fund. The complaint lodged claims that these two Wall Street Giants refrained from their duties on regular basis as the trustees for mortgage-backed bonds of Washington Mutual Inc.

Chicago-based the Policemen’s Annuity and Benefit Fund alleged that BofA and U.S. Bancorp failed in their roles and did not accurately administer 41 Washington Mutual trusts backed by home loans. Due to the ignorance of these banks, the investors suffered huge losses. U.S. Bancorp succeeded BofA as trustee for these mortgage bonds.

The pension fund invested in six of the total trusts and faced significant losses. The trustee’s key role is to look after all the loan documents and distribute payments received from servicers to the bondholders. But, the fund claimed that both banks were unsuccessful in holding the loan files. Moreover, they even did not focus on the completeness of the documents and enforcing Washington Mutual to repurchase defective loans in those trusts.

The fund has filed the lawsuit in Manhattan federal court and demanded justice for the investors. Though no arguments has been received from BofA, U.S. Bancorp spokeswoman accused the complaint as baseless. According to U.S. Bancorp, the complaint filed contains various misrepresentations of the bank’s role as trustee. Therefore, U.S. Bancorp will fight for the allegations imposed.

Earlier this month, the federal judge in New York rescinded the bid filed by the Bank of New York Mellon Corp. (BK - Analyst Report) regarding the dismissal of a lawsuit charged against the bank. The lawsuit accused the company of failing to perform its responsibilities as the trustee for investors in Countrywide Financial Corp. mortgage bonds. The Chicago fund was one of the plaintiffs.

In July 2008, Countrywide was purchased by BofA. Following this, most of the operations of Washington Mutual were bought by JPMorgan Chase & Co (JPM - Analyst Report) on its failure.

At the beginning of earnings season, such accusations on Wall Street biggies will negatively affect the banking stocks and their reputation in the market. Moreover, it would dent the banks’ financials and loosen up the investors’ confidence.

BofA currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating, while U.S. Bancorp retains a Zacks #1 Rank (a short-term ‘Strong Buy’ rating).