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Analyst Blog

Issues pertaining to pre-crisis business conducts continue to haunt major global banks. Recently, a group of institutional investors including BlackRock, Inc. (BLK - Analyst Report) and Pacific Investment Management Co. (PIMCO) sued six banks for their alleged failure as mortgage-bond trustees for over $2 trillion worth of securities.

The six major banks are U.S. Bancorp (USB - Analyst Report) , Citigroup Inc. (C - Analyst Report) , Deutsche Bank AG (DB - Analyst Report) , The Bank of New York Mellon Corporation (BK - Analyst Report) , HSBC Holdings plc (HSBC - Analyst Report) and Wells Fargo & Company (WFC - Analyst Report) . The lawsuits, filed in the New York State Supreme Court, New York County, seek unspecified damages for losses exceeding $250 billion on nearly 2,220 residential mortgage-backed securities (RMBS) trusts. These RMBS trusts were issued between 2004 and 2008.

Apart from BlackRock and PIMCO, other investors joining the lawsuits include Prudential Financial Inc. (PRU - Analyst Report) , DZ Bank AG, Aegon N.V. and The Charles Schwab Corporation (SCHW - Analyst Report) .

Per the lawsuits, these banks allegedly breached their fiduciary duties as trustees despite knowing that RMBS trusts held substantial number of sub-standard loans. Further, the  banks are accused of failing to invoke their rights in order to force loan originators and bond issuers to buy back these RMBS trusts.

For these banks, the above-mentioned lawsuits are yet another addition to their ongoing legal problems. Further, banks across the globe have been facing increasing scrutiny of their business practices in the years prior to the financial crisis. Many of the banks have paid billions of dollars as fines and compensation to settle lawsuits and probes against them.

Many investors have lost their hard-earned money as a result of such business malpractices by the banks. These lawsuits and their success will restore their confidence in the law-enforcement agencies.