Goldman Sachs Faces Growing List of Potential Mortgage Lawsuits
Goldman Sachs Group Inc. (GS), the fifth- biggest U.S. bank by assets, was sued over its sale of mortgage- linked securities to now-failed credit unions hours after it disclosed a list of other potential complaints.
The National Credit Union Administration filed a lawsuit in California today and said it’s seeking more than $491 million of damages from Goldman Sachs. American International Group Inc. (AIG), Fannie Mae and Freddie Mac are among firms that have also threatened to take legal action against the bank over mortgage- related securities, Goldman Sachs said in a regulatory filing.
The bank was already facing active mortgage-linked lawsuits from companies and investors that the firm estimated had experienced cumulative losses of $485 million as of June 30. The new potential claims aren’t included in that estimate or in the firm’s $2 billion estimate of “reasonably possible” losses from legal cases.
The list of entities, which also includes the Federal Housing Finance Agency and insurance companies Allstate Corp. (ALL) and John Hancock, “threatened to assert claims against the firm in connection with various mortgage-related offerings,” New York-based Goldman Sachs said in the quarterly filing. The company has reached agreements with some of the entities to toll the relevant statute of limitations.
Stephen Cohen, a spokesman for Goldman Sachs in New York, declined to comment. The stock rose $5.07, or 4.3 percent, to $122.73 in New York Stock Exchange Composite trading after falling as low as $111.60 earlier in the session. Goldman Sachs is down 27 percent so far this year.
Lawsuit Targeting JPMorgan
The NCUA’s suit against Goldman Sachs, which relates to the collapse of U.S. Central and Western Corporate federal credit unions, follows a complaint against JPMorgan Chase & Co. (JPM) and two against Royal Bank of Scotland Group Plc. (RBS)
“Those who caused the problems in the wholesale credit unions should pay for the losses now being paid by retail credit unions,” NCUA Chairman Debbie Matz said in a statement.
AIG, the insurer rescued by U.S. bailouts during the 2008 financial crisis, yesterday sued Bank of America Corp. (BAC) In that case, AIG claimed that Bank of America caused more than $10 billion in losses at AIG, which specialized in investments and insurance tied to mortgage bonds. Bank of America rejected the assertions of New York-based AIG.
Mark Herr, a spokesman for AIG, declined to comment on the company’s potential suit against Goldman Sachs, as did Maryellen Thielen, a spokeswoman for Allstate. Laurie Lupton, a spokeswoman for Toronto-based Manulife Financial Corp. (MFC), which owns John Hancock, had no immediate comment.
Spokespeople for the FHFA and Freddie Mac also declined to comment, while Amy Bonitatibus, a spokeswoman for Fannie Mae, didn’t immediately return a call seeking comment.
Goldman Sachs reduced its estimate of “reasonably possible” losses from lawsuits to $2 billion as of June 30 from $2.7 billion on March 31, according to the quarterly filing with the Securities and Exchange Commission.
Banks started releasing estimates of possible losses after the SEC told corporate finance chiefs in October that they should disclose such costs “when there is at least a reasonable possibility” that they may be incurred, even if the risk is too low to require reserves.
The estimate, the third of its kind made by Goldman Sachs, is the “upper end” of losses in matters where the risk is “more than remote but less than likely,” the New York-based firm said.