The Zacks Analyst Blog Highlights: Citigroup, Goldman Sachs Group, JPMorgan
Chase, UBS and Bank of America
CHICAGO, Nov. 9, 2012
CHICAGO, Nov. 9, 2012 /PRNewswire/ --Zacks.com announces the list of stocks
featured in the Analyst Blog. Every day the Zacks Equity Research analysts
discuss the latest news and events impacting stocks and the financial markets.
Stocks recently featured in the blog include Citigroup Inc. (NYSE:C), Goldman
Sachs Group Inc. (NYSE:GS), JPMorgan Chase & Co. (NYSE:JPM) and UBS AG
(NYSE:UBS) and Bank of America Corp. (NYSE:BAC).
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Here are highlights from Thursday's Analyst Blog:
Citi Encounters Yet Another MBS Suit
Issues arising out of the sale of risky mortgage-backed securities (MBS) are
far from over for Citigroup Inc. (NYSE:C). The company is now entangled in a
lawsuit filed by Sealink Funding Ltd., for damages related to its investment
in residential MBS worth $513 million, according to a Bloomberg report.
Sealink has accused Citi of presenting misleading facts and withholding
information regarding the underwriting criteria adopted while issuing the
loans that were further pooled together, securitized and sold to investors.
The suit was filed in New York State Supreme Court in Manhattan yesterday and
Sealink is demanding damages over and above the principal amount.
The Back Story
As a matter of fact, mortgage loans which were pooled together and securitized
constituted a significant part of the housing bubble. So when the bubble
burst, it sent the economy clambering. The MBS suffered severe losses and
ultimately their market dried up.
Investors incurred losses worth billions on such MBS and accused the sellers
on grounds of fraud for not making adequate disclosures about the risks
associated with investments on such securities. This resulted in several
lawsuits against the biggest Wall Street firms by investors. Further, the
companies had to confront the wrath of the regulators and are facing several
investigations as well as penalties.
However, Citi is not the only one countering such MBS related issues. In
addition to filing suit against Citi, Sealink pursued other big banks
including the likes of Goldman Sachs Group Inc. (NYSE:GS), JPMorgan Chase &
Co. (NYSE:JPM) and UBS AG (NYSE:UBS) for its investments in MBS. Bank of
America Corp. (NYSE:BAC), which too was sued by Sealink over the same issue,
has resolved these allegations recently, as per regulatory filing.
Citi, being hit hard by the impact of the financial crisis, had to seek refuge
in government bailouts to stay afloat. Its market value suffered a significant
fall since the crisis and the company is still battling the aftermath of the
crisis. Citi's conduct related to MBS has been questioned several times and
the Sealink lawsuit has further piled up its litigation issues.
However, as litigation overhangs need to be lessened, Citi has engaged its
resources to resolve them. Yet, the settlement results exhaust the company's
financials, which could have been steered towards the company's growth
initiatives, had it not been subject to such litigations.
Citi, otherwise, boasts of an impressive global footprint and attractive core
business. The company has restructured its business and overhauled its risk
management. It is reducing its risky exposures by trimming the problem assets,
which in turn frees up capital to be invested in its core business. Yet, a low
interest rate environment, regulatory headwinds and litigation risks remain
Citi currently retains its Zacks #3 Rank, which translates into a short-term
Hold rating. Considering its fundamentals, we have a long-term Neutral
recommendation on the stock.
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