UK Investment Firm Sues 15 US Banks After Losing $1.2bn on Subprime RMBS
UK-based Cambridge Place Investment Management filed a complaint in a Massachusetts court alleging 15 US banks provided false or misleading information about subprime mortgage investments. The banks allegedly offered or sold roughly $2.4bn of residential mortgage-backed securities (RMBS) by providing misrepresenting information about the underlying subprime mortgages. Among the defendants in the case are Morgan Stanley (MS), Citigroup (C), Credit Suisse Securities (CS), RBS Securities (RBS), Deutsche Bank Securities (DB), UBS Securities (UBS), Goldman Sachs (GS), JP Morgan Securities (JPM), Banc of America Securities (BAC), Barclays Capital and Bearn Stearns. The complaint (download here, courtesy of The New York Times) alleges that untrue statements and omissions of fact on the part of these banks led to losses in excess of $1.2bn at Cambridge. Cambridge alleges the banks provided false information regarding the mortgage originators' underwriting standards that were used to determine the borrowers' ability to repay. The complaint also claims the banks provided inaccurate information about appraisal standards used in valuation of the homes securing the loans. Loan-to-value and debt-to-income ratios, as well as occupancy status of the mortgages were also allegedly misrepresented. Additionally, Cambridge claims the banks misrepresented the level of due diligence on the loans and the various forms of credit enhancement applicable to certain RMBS tranches. "The next thing that has to happen is each of the 15 banks will have to get their act together and respond," Cambridge Place spokesperson Jonathan Hawker tells HousingWire. "Considering there are 15 defendants, I don't imagine that will happen quickly." The complaint was filed under "blue sky" legislation, meaning the burden falls on Cambridge to prove the information provided on the subprime investments was incorrect, according to Hawker. He noted 63 confidential witnesses within the banks contributed statements regarding the misrepresentation of information. Write to Diana Golobay. Disclosure: the author holds no relevant investments.