Post by MMM on Aug 9, 2011 9:00:06 GMT 4
American International Group Inc., the bailed-out insurer, sued Bank of America Corp. over $10 billion in losses on mortgage-bond investments. The bank dropped 20.3 percent in New York trading.
AIG bought more than $28 billion in residential mortgage-backed securities marred by a "massive fraud" conducted by Bank of America and businesses it took over - Countrywide Financial Corp. and Merrill Lynch & Co., the insurer said in a complaint filed today in New York State Supreme Court.
"Bank of America's fraud caused billions of dollars in damage to AIG and we are bringing this suit Monday to protect AIG and the taxpayers' stake in it," Mark Herr, a spokesman for AIG, said in a statement. "This is not the first lawsuit that AIG has filed against counterparties that have sought to profit at our expense, and we anticipate that it will not be the last."
AIG took U.S. government bailouts starting in 2008 to avert a collapse after losses tied to subprime home loans and insuring mortgage bonds. Bank of America, which repaid its government aid in 2009, has lost more than 38 percent this year in New York trading through last week as Chief Executive Officer Brian Moynihan reached settlements with loan buyers and insurers who claim the bank's Countrywide unit created defective mortgages.
Bank of America fell $1.66 to $6.61 in New York Stock Exchange composite trading. AIG fell 10 percent to $22.58.
The AIG lawsuit is the latest legal pressure faced by Moynihan, 51, who took over as CEO last year. Last month, former Countrywide investors including BlackRock Inc. sued Bank of America after opting out of a $624 million settlement. Plaintiffs said the subprime lender misled shareholders about its finances and lending practices.
The bank rejects the insurer's "assertions and allegations," said Larry DiRita, a spokesman for the lender, the biggest in the U.S. by assets.
"AIG recklessly chased high yields and profits throughout the mortgage and structured finance markets," said DiRita. "It is the very definition of an informed, seasoned investor, with losses solely attributable to its own excesses and errors."
Bank of America and the other defendants created mortgage securities backed by shoddy loans and sold the investments based on inflated credit ratings that masked their true risk, AIG said in the complaint. Offering materials "grossly understated" the risks of loans tied to the securities the insurer purchased, the company said.
AIG was also misled into believing that loans underlying their investment were issued according to certain underwriting guidelines that in fact had been "long abandoned," according to the complaint. The only measure of whether a loan would be approved was whether it could be packaged into bonds and sold to investors like AIG, the company said.
"The defendants were engaged in a massive scheme to manipulate and deceive investors, like AIG, who had no alternative but to rely on the lies and omissions made by the defendants," AIG said.
AIG bought more than $28 billion in residential mortgage-backed securities marred by a "massive fraud" conducted by Bank of America and businesses it took over - Countrywide Financial Corp. and Merrill Lynch & Co., the insurer said in a complaint filed today in New York State Supreme Court.
"Bank of America's fraud caused billions of dollars in damage to AIG and we are bringing this suit Monday to protect AIG and the taxpayers' stake in it," Mark Herr, a spokesman for AIG, said in a statement. "This is not the first lawsuit that AIG has filed against counterparties that have sought to profit at our expense, and we anticipate that it will not be the last."
AIG took U.S. government bailouts starting in 2008 to avert a collapse after losses tied to subprime home loans and insuring mortgage bonds. Bank of America, which repaid its government aid in 2009, has lost more than 38 percent this year in New York trading through last week as Chief Executive Officer Brian Moynihan reached settlements with loan buyers and insurers who claim the bank's Countrywide unit created defective mortgages.
Bank of America fell $1.66 to $6.61 in New York Stock Exchange composite trading. AIG fell 10 percent to $22.58.
The AIG lawsuit is the latest legal pressure faced by Moynihan, 51, who took over as CEO last year. Last month, former Countrywide investors including BlackRock Inc. sued Bank of America after opting out of a $624 million settlement. Plaintiffs said the subprime lender misled shareholders about its finances and lending practices.
The bank rejects the insurer's "assertions and allegations," said Larry DiRita, a spokesman for the lender, the biggest in the U.S. by assets.
"AIG recklessly chased high yields and profits throughout the mortgage and structured finance markets," said DiRita. "It is the very definition of an informed, seasoned investor, with losses solely attributable to its own excesses and errors."
Bank of America and the other defendants created mortgage securities backed by shoddy loans and sold the investments based on inflated credit ratings that masked their true risk, AIG said in the complaint. Offering materials "grossly understated" the risks of loans tied to the securities the insurer purchased, the company said.
AIG was also misled into believing that loans underlying their investment were issued according to certain underwriting guidelines that in fact had been "long abandoned," according to the complaint. The only measure of whether a loan would be approved was whether it could be packaged into bonds and sold to investors like AIG, the company said.
"The defendants were engaged in a massive scheme to manipulate and deceive investors, like AIG, who had no alternative but to rely on the lies and omissions made by the defendants," AIG said.