Tag Archives: CDO

Citigroup must face South Korean bank’s lawsuit over failed CDO

(Reuters) – A U.S. appeals court on Wednesday revived a lawsuit in which South Korea’s Woori Bank accused Citigroup Inc of defrauding it into buying risky mortgage securities that Citigroup was betting against, prior to the financial crisis.

The 2nd U.S. Circuit Court of Appeals in New York said a lower court judge erred in finding that Woori waited too long to sue over its $25 million investment in 2007 in Armitage ABS CDO Ltd, a collateralized debt obligation that Citigroup sold.

Citigroup declined to comment.

Woori was the South Korean financial sector’s biggest victim of the U.S. subprime mortgage crisis, and wrote off much of a $1.5 billion stake in CDOs and credit default swaps. It later sued a few banks in the United States to recoup some losses.

According to court papers, Woori invested in Armitage in March 2007, only to see the CDO default that December. Woori said it shed its “worthless” stake in Armitage in August 2008.

But the Seoul-based bank did not sue until May 15, 2012, which Citigroup argued was too late under a three-year statute of limitations prescribed under South Korean law.

Read on.

Wells Fargo sued by German agency for $160 mln in CDO losses

NEW YORK, Jan 23 (Reuters) – Wells Fargo Bank, N.A. was sued Wednesday by a German government agency that accused it of mismanaging a collateralized debt obligation, resulting in more than $160 million in losses.

Wells Fargo and Collineo Asset Management GMBH, a German financial services company, allowed investments of overly risky assets not permitted under the contracts governing House of Europe Funding I Ltd, a Cayman Islands CDO issuer, according to the lawsuit filed in Manhattan federal court.

The German agency, Erste Abwicklungsanstalt, and the CDO itself both sued Wells as trustee and Collineo as asset manager for allowing the ineligible purchases.

House of Europe Funding I’s investments in other CDOs far exceeded the limit of 15 percent of the portfolio, the lawsuit said.

Since April 2006, House of Europe Funding I purchased over $171 million of CDO securities in at least six separate transactions, all in breach of contract, according to the complaint.

Over 80 percent of the improper assets defaulted and are worth almost nothing, the complaint says.

Read on.

Morgan Stanley Bankers Sold Off ‘Shitbag’ CDOs With ‘Nuclear’ Capabilities To Clients: Emails

It’s becoming depressingly familiar: Bankers joke openly in emails about a toxic investment they’re creating. Bankers sell said toxic investment to clients while betting against it. Everybody loses money, nobody goes to jail. Rinse, repeat, crash the economy.

The latest round of emails was produced in a lawsuit by a Chinese bank suing Morgan Stanley over a $500 million subprime-mortgage collateralized debt obligation the bank created and marketed as “Stack 2006-1.” ProPublica’s Jesse Eisinger writes that documents in the case show Morgan Stanley bankers had very different ideas about what it should be called.

Those names, according to internal emails from early 2007 unearthed in the case, included “Shitbag,” “Nuclear Holocaust,” “Subprime Meltdown” and “Mike Tyson’s Punchout.”

Rea on.

U.S. judge allows investor suit over Goldman CDOs

Thomson Reuters News & Insight.

A federal judge said on Thursday that shareholders can proceed with a lawsuit accusingGoldman Sachs Group Inc of concealing conflicts of interest in several collateralized debt obligation transactions, the fallout from which caused Goldman’s stock price to drop.

The lawsuit in Manhattan federal court consolidates claims from Goldman shareholders who said the firm failed to disclose it was betting against its clients by taking short positions in four CDO transactions it sold to investors.

U.S. District Judge Paul Crotty ruled that investors could proceed with claims that Goldman should have disclosed those positions to clients, as well as hedge fund Paulson & Co’s alleged role in hand-picking risky subprime mortgages that went into one of the CDOs, known as Abacus.

According to the complaint, Goldman’s actions caused its shares to trade at inflated levels. The shares fell 12.8 percent on April 16, wiping out more than $12 billion of value, after the SEC filed a civil fraud lawsuit against Goldman over the Abacus CDO. Goldman settled the lawsuit for $550 million.