Sealink, in a suit filed today in New York State Supreme Court in Manhattan, accused Citigroup of misrepresenting and omitting information on the underwriting standards used to issue loans pooled to create the securities. Sealink is seeking more than the principal amount of the securities in damages.
Citigroup, based in New York, has been fending off litigation tied to mortgage-backed securities since the financial crisis, when U.S. taxpayers had to rescue the lender with a $45 billion bailout. The bank is cooperating in response to subpoenas and requests for information from regulators concerning its “mortgage-related conduct,” according to a quarterly regulatory filing.
Danielle Romero-Apsilos, a Citigroup spokeswoman, declined to comment on the suit.
Sealink was created to manage Landesbank Sachsen AG’s riskiest assets after the German lender almost collapsed. It has filed lawsuits in New York over investments in mortgage bonds against banks including UBS AG, Goldman Sachs Group Inc., Deutsche Bank AG, Bank of America Corp. (BAC) and JPMorgan Chase & Co.
Bank of America, the second-largest U.S. bank, said last week in a regulatory filing that in September it settled suits with Sealink and two other foreign mortgage-bond investors, Dexia SA and Bayerische Landesbank, Germany’s second-biggest state-owned lender. The Charlotte, North Carolina-based lender didn’t disclose the amounts it paid.
Pools of home loans securitized into bonds were a central part of the housing bubble that helped send the U.S. into the biggest recession since the 1930s. The housing market collapsed, and the crisis swept up lenders and investment banks as the market for the securities evaporated.
SachsenLB, a state-owned lender, received a 17.3 billion- euro ($22.1 billion) bailout in 2007 to support an investment vehicle that ran out of funding amid the credit crunch. The German state of Saxony agreed a week later to sell the bank to Landesbank Baden-Wuerttemberg to avoid closing.
As part of the agreement, the state guaranteed to cover as much as 2.75 billion euros in possible losses from investments backed by assets including U.S. subprime mortgages that were placed in Sealink.
The case is Sealink Funding Ltd. v. Citigroup Inc., 653844/2012, New York State Supreme Court, New York County (Manhattan).