NEW YORK, Sept 6 - A federal appeals court has revived a lawsuit accusing Goldman Sachs Group Inc (GS) of misleading investors about the risks associated with mortgage securities offerings.
Thursday's decision by the 2nd U.S. Circuit Court of Appeals in New York could subject banks to a wider array of claims by mortgage securities investors, by letting them sue over securities in which they did not specifically invest themselves.
The decision allows lead plaintiff NECA-IBEW Health & Welfare Fund, an electrical workers' pension fund that owned some mortgage-backed certificates underwritten by Goldman, to pursue a class-action case on behalf of investors in other certificates backed by mortgages from the same lenders.
"Plaintiff has class standing" to pursue claims under federal securities law, Circuit Judge Barrington Parker wrote for a unanimous three-judge panel, "because such claims implicate the same set of concerns as plaintiff's claims."
Parker also said the fund need not allege out-of-pocket losses to pursue claims over illiquid securities. He said this was because losses could exist if there were credit rating downgrades, or borrowers appeared unable to make payments.
The decision reversed parts of rulings in 2010 by U.S. District Judge Miriam Goldman Cedarbaum in Manhattan.
It reinstated claims over seven securities offerings, all dating from 2007, out of the 17 that had been challenged.
Goldman and its rivals have faced thousands of lawsuits by investors seeking to recoup losses on mortgage securities.
The investors typically claim they were misled about the risks relating to the underlying home loans, most of which were made before or as the U.S. housing slump took hold in 2007.
Goldman spokesman Michael DuVally declined immediate comment, having yet to review the decision.
Joseph Daley, a partner at Robbins Geller Rudman & Dowd representing the NECA-IBEW fund, did not immediately respond to requests for comment. The fund is based in Decatur, Illinois, and filed the case in December 2008.
According to the decision, the NECA-IBEW fund had bought certificates from two Goldman-led offerings that contained loans made by GreenPoint Mortgage Funding, later part of Capital One Financial Corp (COF), and Wells Fargo & Co (WFC).
The 17 offerings that were the basis of the lawsuit were sold under the same registration statement, and also contained loans from several other mortgage lenders.
These lenders included Countrywide, later part of Bank of America Corp (BAC); National City, later part of PNC Financial Services Group Inc (PNC); SunTrust Banks Inc (STI); and Washington Mutual, later part of JPMorgan Chase & Co (JPM).
The appeals court found that the plaintiff may represent investors in seven offerings backed by GreenPoint or Wells Fargo loans: the two it invested in, plus five others. It said the other 10 offerings were too different to be part of the case.
In justifying why the NECA-IBEW fund could represent an investor class, the 2nd Circuit cited a 2003 U.S. Supreme Court case over affirmative action at the University of Michigan.
That court allowed a white prospective transfer student to represent prospective freshmen and others challenging the use of race in undergraduate admissions, saying this use was not "significantly different" in transfer and freshman admissions.
The 2nd Circuit decision contrasts with rulings by some other judges in determining whether mortgage debt investors can sue over securities they did not buy.
In November 2010, for example, U.S. District Judge Mariana Pfaelzer in Los Angeles on this basis and others narrowed a lawsuit against Bank of America, reducing the amount of mortgage securities involved to $31 billion from $352 billion.
Goldman shares rose $3.66, or 3.3 percent, to $113.60 in afternoon trading on the New York Stock Exchange.
The case is NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co et al, 2nd U.S. Circuit Court of Appeals, No. 11-2762.
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BOK (BOKF) is the smallest bank on the list with a $3.8 billion market value and $26 billion in assets. The bank holding company is based in Tulsa, Okla., but its branches operated under several names in other states: Bank of Albuquerque, Bank of Arizona, Bank of Arkansas, Bank of Kansas City, Bank of Oklahoma, Bank of Texas and Colorado State Bank and Trust. BOK is worth about 12.5 times earnings and is valued at 1.3 times book value. The return on equity is 11%, and it offers a 2.7% dividend yield to the common holders. Shares are trading around $56.00, and Wall Street analysts have a target above $59.00.
KeyCorp (KEY) is the one exception in our list to our rule about share prices under $10. Its other metrics more than make up for this. It has a market cap of just $7.12 billion against some $87 billion in assets. It operates in 14 states throughout the Rocky Mountain, Northwest, the Great Lakes and Northeast regions. To make its appearance on this list even more impressive, KeyCorp is headquartered is in Cleveland, where a large number of now-troubled loans were issued. The bank has a return on equity of 9.2% and pays out a 2.7% dividend yield. Shares trade around $7.50 but have a target price of $9 from Wall Street.
PNC (PNC) is based in Pittsburgh and has almost $300 billion in assets, with over 2,500 branches and almost 7,000 ATMs in 14 states. It has a market cap of $31.01 billion, and its stock is valued at 10.6 times earnings and at less than 0.9 times book value. The return on equity is 8.9%, and the company pays out a 2.73% dividend. Shares are trading at under $59, but Wall Street is eyeing a price of $70.50. PNC was even strong enough financially to close its National City acquisition at the end of 2008 when there was so much fear in the financial markets. PNC also owns almost a quarter of the great asset-management firm BlackRock (BLK).
M&T Bank Corporation (MTB) is based in Buffalo, N.Y., and now has more than $79 billion in assets. Excluding any small purchases made recently, M&T had nearly 700 branches, 2,000 ATMs and a presence in eight states. The market cap is $10.12 billion, its P/E ratio is 12.7, and its price-to-book value ratio is only 1.07. M&T has a return on equity of 9.5% and pays out a dividend of 3.5% to common stockholders. The stock is trading just north of $80 a share, but analysts have set a target price of about $90. Berkshire Hathaway owns almost 5.4 million M&T Bank common shares worth more than $400 million.
U.S. Bancorp (USB) is often overlooked as a money-center bank because it is a super-regional located in Minneapolis. But it's the fifth-largest commercial bank in the United States and caters to millions of consumers. With $341 billion in assets, more than 3,000 branch locations and more than 5,000 ATMs, its operations are spread out over 25 states in America. Berkshire Hathaway owns some 69 million shares worth more than $2.1 billion. The bank's market cap is $59 billion. It is worth about 10 times earnings and 1.6 times book value. The return on equity is very high at 16%, and it offers a 2.5% dividend yield to the common holders. Shares are trading around $31.50, and Wall Street analysts have a target of about $34.25 on this great, safe bank.
Despite the media attention surrounding the JPMorgan's (JPM) multibillion-dollar trading loss, the firm is still in good shape compared to many of its peers. It has a fortress-like balance sheet with about $2.3 trillion in assets, and CEO Jamie Dimon has said the only thing that could lead to the bank's failure is a collision of the Earth and Moon. Despite a share price decline following news of the "London Whale" trading loss, the company still has a sizable market cap of $135.17 billion. Shares trade at less than 8 times earnings and only about 0.7 times book value. The return on equity is 9.8%, and the company pays a dividend yield of 3.4% on the common stock. While the bank shares are trading at just over $36, analysts value the company at $47 a share.
Wells Fargo (WFC) is the undisputed safest bank in America now that JPMorgan Chase & Co. (JPM) has come under scrutiny -- even if Chase has about $1 trillion more in assets. With some 6,200 storefront branches, more than 12,000 ATMs and an asset base of over $1.3 trillion, it has a presence in almost every state. Warren Buffett's Berkshire Hathaway owns close to $13 billion worth of the common stock, and his stake keeps rising. The market cap is a whopping $171 billion. The shares trade at less than 9 times earnings and at almost 1.2 times book value. The return on equity is just above 12%, and it offers a 2.7% dividend yield to the common holders. While shares trade at around $32.50, Wall Street analysts value the bank at almost $38 per share.