Back to top

UBS AG Wins MBS Lawsuit

Read MoreHide Full Article

Recently, UBS AG (UBS - Free Report) – Switzerland’s largest bank by assets – won the lawsuit filed against it by the Pension Trust Fund for Operating Engineers, a U.S.-based pension fund. The plaintiffs had accused the banking major of misrepresentations during the offering of mortgage backed securities (MBS) worth $2.5 billion in 2007.

The class action lawsuit, filed in 2010, was dismissed by The Third Circuit Court of Appeals in Philadelphia. The court declared that the Calif.-based pension fund should have started investigating its $5 million investment in the faulty bonds in 2008 itself. This was the same year in which the pension fund had filed a class action lawsuit in California against UBS AG and other banks over the sale of fraudulent bonds related to Countrywide Financial Corp mortgages.

While Countrywide Financial Corp. originated almost 52% of the mortgage-backed securities and IndyMac Bancorp Inc. originated 40%. Thereafter, IndyMac collapsed in mid-2008, and Bank of America Corporation (BAC - Free Report) acquired Countrywide in 2008.

During dismissal of the lawsuit that was filed in 2010, the court stated that  the pension fund had earlier knowledge of the faulty MBS.

Post the financial crisis; many major banks such as Citigroup Inc. (C - Free Report) and JPMorgan Chase & Co. (JPM - Free Report) have been facing lawsuits over the misrepresentation of exposure to mortgage-backed securities. UBS too has not been spared. However, this dismissal of the above-mentioned suit offers relief as it reduces the litigation overhangs of the company. As neither any penalty nor settlement amount was required for the resolution, the company’s profitability did not suffer as well.

UBS AG currently carries a Zacks Rank #3 (Hold).

More from Zacks Analyst Blog

You May Like