The Federal Bureau of Investigation has joined class action law firms in accusing financial services firms of misrepresenting financial results. Meanwhile, overseas banks continue to feel the pain from U.S. mortgage investments.
The FBI has 14 corporate fraud investigations open involving financial services companies, spokesman Bill Carter told MortgageDaily.com in an e-mail statement.
"We are not providing specifics," Carter said in the e-mail. However, "insider trading is an aspect we are looking at as well as accounting fraud."
Securities fraud is the basis for a class action suit against National City Corp. and some of its officers and directors commenced by purchasers of the company's common stock on April 30, 2007, through Jan. 2, Dreier LLP announced. Among the suit's allegations is that the Ohio-based lender concealed its true financial condition by failing to disclose the significant risk it faced due to subprime mortgages on its books, failing to maintain adequate reserves for the exposure, and not taking those factors into account when making statements about future dividend payments and financial performance.
The law firm noted National City's stock fell by as much as $1.01 on Jan. 2, when the company announced a cut to $0.21 in the quarterly dividend after assuring an amount of $0.41 in October amid significantly reduced earnings resulting from mortgage losses.
Meanwhile, Japan-based Sumitomo Trust & Bank Co.'s year-to-date $279.7 million in losses and provisions related to investments in overseas credit products contributed to a 53 percent downturn in net income to $150 million for the third quarter ending Dec. 31. And the reported fifth-largest Japanese bank believes credit market losses could reach $396.1 million for the year ending March 31 -- more than double its November forecast of $186.5 million, according to published reports.
But results will be even worse for Swiss banking giant UBS, which anticipates a net loss of over $11.4 billion in the fourth quarter as results will reflect a $12 billion hit on positions related to the U.S. subprime mortgage market and $2 billion on other positions associated to U.S. residential mortgages, it said in an earnings pre-announcement Wednesday. Just last month, the company had anticipated writing down $10 billion in its U.S. subprime holdings.
UBS additionally said it expects to record a net loss of $4 billion for full-year 2007 and will disclose further details when it publishes final results on Feb. 14.