JPMorgan Chase & Co. (JPM), Bank of America Corp. and three other U.S. mortgage servicers are in advanced talks to resolve state and federal claims over faulty foreclosures, according to two people briefed on the matter.
Negotiators tentatively set a July 13 target for a settlement, which may exceed $20 billion, the people said, speaking on the condition of anonymity because the talks are private. Some banks are briefing their boards on deal terms, which would form state and federal funds to resolve claims and provide relief to borrowers, they said. The target date may be postponed as parties iron out details.
Attorneys general and federal officials are negotiating with the group of lenders -- also including Citigroup Inc. (C), Wells Fargo & Co. (WFC) and Ally Financial Inc. -- to resolve probes into how banks treated borrowers during a surge in mortgage defaults. A final agreement, setting standards for servicing loans and processing foreclosures, may serve as a template for claims against the rest of the industry.
The July 13 target corresponds with a separate deadline the Office of the Comptroller of the Currency set for banks to submit an “action plan” for fixing deficiencies and compensating people whose homes were improperly seized. If talks aren’t done by then, the OCC may push back its date, the people said.
“We are trying to integrate our settlement with the OCC action plan,” said Geoff Greenwood, spokesman for Iowa Attorney General Tom Miller, without commenting on the July 13 date. “The action plan does not involve us, but we’re trying to work together.”
Miller is leading the negotiations on the states’ behalf.
The proposed accord would require banks to set up a fund for states to resolve civil mortgage complaints as well as a separate federal account that would require them to provide a specified amount of mortgage relief to borrowers, two people said. Banks could get credit toward their relief obligation if they write down principal and modify loans in their portfolio, one of the people said. The exact mechanism to determine and award credits is still being discussed, the person said.
Spokesmen for Charlotte, North Carolina-based Bank of America, San Francisco-based Wells Fargo, Detroit-based Ally and New York-based Citigroup and JPMorgan said they couldn’t comment. A spokesman for the OCC didn’t immediately return phone calls seeking comment yesterday.
Attorneys general from all 50 states announced an investigation last year following claims of faulty foreclosure practices by banks. At a May 24 meeting, state legal officers told the banks they will face an estimated $17 billion in claims if the inquiries result in civil lawsuits.
Morgan Stanley Sued by Allstate on Mortgage Fraud Claims
Allstate purchased more than $104 million in Morgan Stanley residential mortgage-backed securities in six offerings between 2005 and 2007, based on registration statements, prospectuses and other documents, as well as the “central role” that Morgan Stanley played in creating and selling the securities, it said in the suit filed July 5 in New York state Supreme Court.
Morgan Stanley told Allstate it had conducted due diligence on the companies that originated the mortgages before turning them into securities, and assured the Northbrook, Illinois-based insurer that the loans conformed with “conservative” underwriting standards and that the appraisals of the mortgage properties were accurate, the lawsuit says.
“As Allstate and the world would only later discover, the originators whose loans collateralized the Morgan Stanley RMBS purchased by Allstate were among the worst of the worst culprits in the subprime lending industry,” Allstate said in the suit. “Morgan Stanley knew or recklessly disregarded that those lenders were issuing high-risk loans that did not conform to their respective underwriting standards.”
Mary Claire Delaney, a spokeswoman for New York-based Morgan Stanley, declined to comment in a telephone interview.
Standard Chartered Sued in Singapore Over Investment Products
Standard Chartered Bank Plc (STAN) was sued by Thai businessman Chatchai Yenbamroong in Singapore for $2 million, claiming the bank gave him negligent and fraudulent investment information.
Yenbamroong invested the money in a U.S. dollar callable note which the London-based bank had falsely misrepresented as a principal-protected conservative investment, the Thai businessman said in his lawsuit filed with the Singapore High Court on June 29. The case is scheduled to have its first closed hearing on Aug. 10.
The businessman was induced by his Standard Chartered banker to sign a blank account opening form, according to the claim. The bank didn’t provide him with terms and conditions or ask him for an investor profile before he opened the account in 2009, said Yenbamroong.
Standard Chartered, which hasn’t filed its defense, denied liability on June 10 through its lawyers at Allen & Gledhill LLP according to the lawsuit. Ally Lim, a Singapore-based spokeswoman at Standard Chartered, declined to comment as did Niru Pillai, the lawyer acting for Yenbamroong.
The case is Chatchai Yenbamroong v. Standard Chartered Bank S456/2011 in the Singapore High Court.
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Lehman Borrowed $18 Billion From Undisclosed Fed Program
Lehman Brothers Holdings Inc.’s brokerage borrowed as much as $18 billion in four separate loans from a previously secret program of the U.S. Federal Reserve in June 2008, three months before its parent filed the biggest bankruptcy in U.S. history.
The program, which peaked at $80 billion in loans outstanding, was known as the Fed’s single-tranche open-market operations, or ST OMO. It made 28-day loans to units of 19 banks between March 7, 2008, and Dec. 30, 2008. Bloomberg reported on ST OMO in May, after the Fed released incomplete records on the program. In response to a subsequent Freedom of Information Act request for details, the central bank disclosed borrower names, amounts borrowed and interest rates.
The Lehman brokerage, Lehman Brothers Inc., tapped the ST OMO program for as much as $5 billion in short term funding in March 2008, and lower amounts at other times during the month. It took as much as $10 billion in June as the credit crisis worsened, according to Fed data. The maximum outstanding for any period was $18 billion.
The brokerage agreed on Sept. 18, 2008, to pay outstanding loans that day, the Fed said. It went into liquidation on Sept. 19, four days after its parent.
Separately, the Lehman parent then run by Chief Executive Officer Richard Fuld had a $45 billion loan from the Fed’s so-called Primary Dealer Credit Facility around the time of its bankruptcy. An August 2009 article in a Federal Reserve Bank of New York publication said the Fed’s facility was expanded on Sept. 14, 2008, in response to reports that Lehman was “only days away” from bankruptcy, and might put other firms at risk.
The day before Lehman filed for bankruptcy, almost all of its $41 billion cash pool was tied up at bank lenders including JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. (BAC), according to a bankruptcy examiner’s report.
Expanding its facility to lend to Lehman, the Fed took previously unacceptable collateral for its loans, including non-investment grade securities and equities, according to the article, “The Federal Reserve’s Primary Dealer Credit Facility.”
Concerned about the safety of the loan, the Fed told Barclays Plc (BARC) to take over the loan when it bought the defunct investment bank’s North American business, according to court testimony. Barclays closed its purchase of Lehman’s business a week after Lehman’s Sept. 15, 2008, bankruptcy.
Separately, the U.K. bank’s Barclays Capital Inc. unit had peak loans from the ST OMO program of $21.4 billion, Fed data shows.
Kimberly Macleod, a Lehman spokeswoman, didn’t immediately respond to e-mails seeking comment. Michael O’Looney, a Barclays spokesman, declined to comment.
The Lehman bankruptcy main case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
BofA Must Face Mortgage Modification Claims, Judge Rules
Bank of America Corp. must face claims from homeowners who accuse the biggest U.S. bank of failing to honor agreements for modifying their mortgage loans, a federal judge ruled.
Homeowners who say they met requirements for permanent modifications under contracts with the bank can proceed with their cases, according a decision filed yesterday by U.S. District Judge Rya Zobel in Boston. Zobel dismissed some claims against the bank.
“The complaint meticulously details each plaintiff’s initial and ongoing compliance with all conditions,” Zobel wrote.
The complaint consolidates 26 cases originating in 19 states that were transferred to federal court in Boston, according to Zobel’s decision. The homeowners sought loan modifications from Bank of America under the federal government’s Home Affordable Modification Program, which is aimed to lower payments for borrowers and help them avoid foreclosure.
“BOA’s general practice and culture is to string homeowners along with no intention of providing actual and permanent modifications,” according to the complaint.
Bank of America sought to dismiss the complaint. Shirley Norton, a bank spokeswoman, said in an e-mail that the bank is pleased that four of eight counts in the complaints were dismissed.
“The decision will give hundreds of thousands of families a second chance at permanently lower mortgage payments,” Gary Klein, a lawyer for the homeowners, said in an interview.
The case is In re Bank of America Home Affordable Modification Program (HAMP) Contract Litigation, 10-md-02193, U.S. District Court, District of Massachusetts (Boston).
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TCW Must Face Gundlach’s Breach of Contract Claims at Trial
TCW Group Inc. must face claims at trial by its former investment chief Jeffrey Gundlach, who said he was fired in 2009 so the company wouldn’t have pay him as much as $1.25 billion in management and performance fees.
Los Angeles County Superior Court Judge Carl West yesterday denied TCW’s bid to bar Gundlach from pursuing breach-of-contract claims because he wasn’t under contract at the time he was fired. The judge ruled that a jury should decide whether TCW and Gundlach made an oral agreement in 2007.
“There is conflicting evidence in the record which at least raises a reasonable inference that the parties expressly agreed to begin performing under the new deal despite the lack of a signed agreement,” West said in his ruling.
Gundlach’s claims were filed in a countersuit against TCW that contended he was dismissed so the company wouldn’t have to pay $600 million to $1.25 billion in future management and performance fees from the funds his group managed.
About a month earlier, in January 2010, TCW, the Los Angeles-based unit of Societe Generale SA, sued Gundlach and three other ex-employees after more than half of its fixed-income professionals joined Gundlach’s new firm, DoubleLine Capital Inc. TCW is seeking more than $200 million in damages, claiming Gundlach stole its trade secrets as he plotted to start his own business.
The case is scheduled to go to trial on July 25.
The case is Trust Co. of the West v. Jeffrey Gundlach, BC429385, Los Angeles County Superior Court.
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Gribkowsky Detention Deadline Expires in August
Prosecutors have until mid-August before they need to ask a court to extend the pretrial detention of former Bayerische Landesbank risk manager Gerhard Gribkowsky, a spokeswoman for investigators said.
Gribkowsky has been held since his arrest on Jan. 5 over allegations he may have received a $50 million kickback for engineering the sale of BayernLB’s stake in Formula One racing. While under German law a suspect can only be held for six months unless found guilty at trial, a court can authorize longer detention if it deems it necessary and not disproportionate.
“In Gribkowsky’s case, the deadline will only elapse in mid-August because after finding new facts after his initial arrest, we were able to get a second arrest warrant for additional allegations,” Barbara Stockinger, the Munich prosecutors’ spokeswoman, said in an interview yesterday. “The deadline thus started anew and only elapses next month.”
Prosecutors will decide by then whether to ask the court to keep Gribkowsky, she said. The probe against him hasn’t been completed she said, declining to say when charges may be brought. If the court doesn’t grant the request, Gribkowsky must be freed, though the probe can continue.
Gribkowsky’s attorney Reinhard Hoess didn’t immediately return a call seeking comment.
Formula One Management Ltd. Chief Executive Officer Bernie Ecclestone is also a suspect of the investigation and being probed over allegations he aided Gribkowsky. He was questioned by Munich prosecutors in April. Prosecutors are looking into whether Gribkowsky took the kickback for engineering the sale of Formula One to CVC Capital Partners Ltd.
Ecclestone has denied the allegations. His German attorney, Sven Thomas, didn’t immediately return a call seeking comment.
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ABB, Nexans, Prysmian Get EU Complaints in Power-Cable Case
ABB Ltd. (ABBN), Nexans SA (NEX), Prysmian SpA (PRY) and as many as nine other power-cable manufacturers received European Union antitrust complaints over allegations of price-fixing for undersea and underground high-voltage power cables.
The European Commission sent complaints to 12 companies “that may have colluded to allocate markets and customers for underground and submarine power cable projects and fix prices,” it said in a statement yesterday.
“The price of such cables is therefore directly relevant for electricity consumers,” the regulator said, without identifying what companies were involved. Sumitomo Electric Industries Ltd., Hitachi Cable Ltd. and General Cable Corp. (BGC) said they also received EU complaints.
Prysmian outbid Paris-based Nexans last year to buy Dutch rival Draka Holding NV, creating the world’s biggest cable maker in an effort to restore margins and counter competition from South Korea. (001440) Nexans said in December that EU antitrust scrutiny put European manufacturers at a disadvantage to rivals in Asia or the Middle East, where sanctions are rare or don’t exist.
Regulators can fine companies as much as 10 percent of yearly sales for colluding with rivals to fix prices. Companies may defend themselves in writing or at an oral hearing before the EU decides on possible fines.
ABB Asea Brown Boveri Ltd., based in Zurich, Switzerland and the world’s biggest maker of power-transmission gear, said it received a statement of objections from the commission and had “a zero tolerance policy with respect to illegal or unethical behavior.”
Prysmian, based in Milan, Italy, said July 5 that it received an antitrust complaint and would defend itself. Nexans said it would respond to regulators in the second half of 2011 after “an analysis of the numerous complex elements.”
NKT Holding A/S (NKT), based in Broendby, Denmark, said yesterday that the company and its units also received a complaint and they would review the EU’s complaint and “defend themselves in this matter.”
General Cable Corp., based in Highland Heights, Kentucky, said the EU statement alleged that two of its units “engaged in violations of competition law for a limited period of time.” The company said it would defend itself against the allegations.
“General Cable only recently entered the submarine power cables business in March 2009 through its subsidiary in Germany, Norddeutsche Seekabelwerke GmbH & Co, which was acquired in 2007,” the company said in a statement.
BofA Settlement Raises ‘Serious Questions,’ Public Funds Say
A group of public pension funds has “serious questions” about the fairness of Bank of America Corp.’s proposed $8.5 billion mortgage-bond settlement, saying it could give some investors a windfall.
The public funds who asked to intervene in the case are the Policemen’s Annuity & Benefit Fund of Chicago, the Westmoreland County Employee Retirement System, City of Grand Rapids General Retirement System, and City of Grand Rapids Police and Fire Retirement System. They didn’t state the size of their investments in Countrywide mortgage-backed securities.
“Public pension funds purchased billions of dollars of Countrywide mortgage backed securities,” David Scott, a lawyer for the funds, said yesterday in a statement. “They need to be given a seat at the table to make sure that the settlement is fair, reasonable and in the best interests of the entire class of investors.”
Bank of America said June 29 that it had agreed to pay $8.5 billion to resolve claims by a group of 22 investors, including BlackRock Inc. (BLK), which wanted the bank to buy back delinquent home loans packaged into bonds by Countrywide Financial Corp., which Bank of America acquired in 2008.
The public pension funds said in a filing yesterday in New York state court, where the agreement has been submitted for a judge’s approval, that their interests may not “be directly aligned” with those of the 22 corporate and hedge-fund investors that negotiated the settlement.
Kathy Patrick, a lawyer for the 22 investors, and representatives of Bank of New York Mellon Corp., the trustee for the bonds that asked the New York court to approve the settlement, didn’t return calls seeking comment after regular business hours.
Shirley Norton, a Bank of America spokeswoman, didn’t return a call seeking comment after regular business hours.
The case is In the matter of the application of The Bank of New York Mellon, 651786/2011, New York state Supreme Court, New York County (Manhattan).
Argentina Loses Debt Immunity Suit in U.K. Supreme Court
Argentina’s state immunity can’t prevent an offshore trader in distressed sovereign debt from using British courts to enforce claims over the country’s 2001 default, the U.K. Supreme Court ruled.
The decision in London yesterday, which reverses a lower court ruling from last year, permits an affiliate of New York-based hedge fund Elliott Associates LP to seize Argentina’s assets in Britain using a $284 million U.S. court judgment it has against the South American nation. Argentina had argued U.K. courts didn’t have jurisdiction on the issue.
“It’s probably a good day for investors in sovereign debt,” Philippa Charles, a lawyer with Mayer Brown in London, said in an interview. “To make the bonds attractive, Argentina had to waive some sovereign immunity rights and this case was about the extent to which they’d done so.”
Four years after Argentina’s $95 billion default, then-President Nestor Kirchner offered bondholders 30 cents on the dollar for their debt -- a deal rejected by holders of about $20 billion of the bonds, including Cayman Islands-based NML Capital Ltd., the Elliott affiliate in the U.K. case.
Kirchner’s wife and successor, President Cristina Fernandez de Kirchner, last year held a second restructuring, exchanging $12.9 billion of the debt that wasn’t swapped in the 2005 negotiation, bringing the total amount cleared to more than 92 percent of bonds outstanding.
Yesterday’s ruling could have implications for buyers of European sovereign debt, since countries in Europe likely hold significant assets in the U.K., Charles said.
The U.K. court “has rejected another of Argentina’s desperate legal strategies contrived to avoid repaying holders of its defaulted bonds,” Scott Tagliarino, a spokesman for NML, said yesterday in a statement.
A spokesman for Argentina’s Economy Ministry didn’t immediately respond to a call and a text message sent to his mobile phone.
The judgment comes a day after a federal appeals court in New York ruled against NML and another bondholder in their bid to seize $105 million of Argentine central bank assets held at the Federal Reserve Bank of New York.
The U.K. case is NML Capital v. Argentina, U.K. Supreme Court, (2011) UKSC 31.
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Antitrust Chief Said to Leave Justice Department for Cravath
Varney, 55, who has made her career in private practice and government in Washington, will work at the law firm’s New York headquarters, the person said.
“I’ve let the attorney general know I will leave August 5 to return to private life and private practice,” Varney said in a telephone interview yesterday, declining to comment on which firm she will join.
She said she plans some time off before taking her next position.
Varney, appointed by President Barack Obama in January 2009, vowed to step up antitrust enforcement as she came into the office in April of that year. One of her first moves was to retract Bush administration guidelines on monopolization policies, saying they “raised too many hurdles” to curbing anticompetitive practices.
“It’s been two and a half years, we’ve built a fantastic team and we have fulfilled President Obama’s commitment to reinvigorating the antitrust laws,” said Varney, a commissioner at the Federal Trade Commission from 1994 to 1997, appointed by President Bill Clinton. “It’s time to move on.”
Her replacement will selected by Attorney General Eric Holder and Obama, Varney said.
Cravath has worked on some of the biggest antitrust cases, including the defense of International Business Machines Corp. against a government antitrust lawsuit filed in 1969.
A spokeswoman for the firm declined to comment on Varney.
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Kremlin Probe Says Hermitage Lawyer Beaten to Death in Jail
President Dmitry Medvedev’s human rights council said Sergei Magnitsky, a lawyer for Hermitage Capital Management Ltd. who died in a Moscow prison in 2009, was probably beaten to death.
Law enforcement agencies should probe the role of Russian officials who denied Magnitsky medical care while he was in pre-trial detention for almost a year, the council said in a report posted yesterday on its website. The lawyer had accused Interior Ministry officials of abuse to force him to drop allegations that they committed a $230 million tax fraud, it said.
The Investigative Committee “hasn’t given proper attention to investigating the officials’ guilt,” according to the report. The council, set up by Medvedev in February to examine human-rights violations, also says the lawyer was illegally denied bail.
Medvedev said in May that all guilty parties in Magnitsky’s “tragic” death should be punished. The president has made fighting corruption and improving the rule of law key objectives as he seeks to attract foreign investors. London-based Hermitage founder William Browder accuses the Russian authorities of a whitewash over Magnitsky’s death.
Russia put Browder on its international wanted list in 2009, seeking to question him on suspicion of conspiring with Magnitsky to evade 500 million rubles ($18 million) of taxes.
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