Bank of New York Mellon is being sued by a German lender over $750 million in losses related to mortgage-backed securities that went sour during the housing crisis.
In a lawsuit filed Dec. 23 in U.S. District Court in Manhattan, Commerzbank AG accused BNY Mellon of breaching its “financial and fiduciary duties” in overseeing 72 trusts that invested in risky home loans.
The loans had been bundled into securities and sold to Commerzbank between 2005 and 2007, a period when shoddy lending practices led to massive defaults and caused the financial crisis.
BNY Mellon spokesman Kevin Heine said the lawsuit was without merit.
“It misconstrues our limited role as trustee in such deals and we will vigorously defend against it,” Heine wrote in an email.
BNY Mellon is based in New York and has about 7,000 employees in Pittsburgh.
Commerzbank brought similar lawsuits last week against three other banks — Deutsche Bank National Trust Co., Wells Fargo and HSBC Bank USA — though the financial losses claimed against BNY Mellon are the largest of the four. Commerzbank is trying to recover a total of $1.9 billion.
The financial damages sought by Commerzbank should not be the biggest concern for the banks, said analyst Paul Gulberg of Portales Partners in New York. Any finding of wrongdoing could open the door for other claims against them.
“The issue is opening up the whole Pandora’s box of who else might come after them if they acknowledge (wrongdoing) in any kind of settlement,” Gulberg said.
The Commerzbank lawsuit comes as BNY Mellon fends off similar claims from a group of pension funds that includes the Westmoreland County Employee Retirement System. The pension funds sued the bank in 2011, accusing it of causing billions of dollars in damages for its role overseeing mortgage-backed securities of Countrywide Financial Corp., which collapsed during the financial crisis. Countrywide had been the nation’s largest mortgage lender before being acquired by Charlotte, North Carolina-based Bank of America Corp. in July 2008.
Two weeks ago, a federal judge in Manhattan District Court rejected BNY Mellon’s bid to dismiss the pension funds case.
Banks have paid billions of dollars to resolve claims over their role in causing the housing crisis.
In August 2014, BofA reached a record $16.65 billion settlement with the Justice Department over charges that it misled investors into buying troubled mortgage-backed securities. It was the largest civil settlement with a single entity in American history.