Mortgage Daily

Published On: June 11, 2008
Firms Fight Rumors, Leaks and Investor LawsuitsRecent corporate activity

June 11, 2008


Two major banks did their best to contain rumors and leaks, while three other financial firms faced investor class action lawsuits.

Concerns over a leak prompted National City Corp. to report it entered into Memoranda of Understanding with the Office of the Comptroller of the Currency on May 5 and with the Federal Reserve Bank of Cleveland on April 29. The actions reportedly relate to its recent $7 billion offering.

“Generally, the relationship between a bank and its regulators is characterized by confidentiality,” National City Chairman, President and Chief Executive Officer Peter E. Raskind said in a statement yesterday. “Unfortunately, however, someone has breached the confidential relationship between National City and our regulators.”

Raskind added that the Memorandums “have no material impact on our ability to serve our customers and communities.”

Washington Mutual Inc. denied rumors that it was facing regulatory actions.

“Neither our primary federal regulator, the [Office of Thrift Supervision], nor any other bank regulatory agency has taken any enforcement action against WaMu that we have not previously disclosed,” a press release today stated. “Further, the company is not currently in such discussions with any regulatory agency.”

A class action lawsuit was filed against Franklin Bank Corp. on behalf of purchasers of the company’s common and preferred stock from Oct. 29, 2007, to May 1, 2008, the Rosen Law Firm announced Saturday. Franklin is accused of engaging in a variety of accounting improprieties, including failing to charge off uncollectible loans and to marking loans to market value.

“As a result of the misconduct alleged, defendants understated the Company’s delinquent, nonperforming, and uncollectible loans and thereby misrepresented Franklin’s financial condition and results, including its overall and per-share profit of its residential mortgage loan portfolio,” Rosen said.

Dyer & Berens LLP reported today it also filed a proposed class-action lawsuit against Franklin. That case, which was filed on behalf of investors who purchased the company’s common stock between April 26, 2007, and May 1, 2008, was filed in the U.S. District Court, for the Southern District of Texas.

Dyer alleges Franklin and some of its officers and directors violated federal securities laws by issuing materially false and misleading statements about the Houston-based bank’s business and financial results.

IndyMac Bancorp Inc. was also hit with a class action.

Coughlin Stoia Geller Rudman & Robbins LLP announced it filed the lawsuit in U.S. District Court for the Central District of California on behalf of purchases of the Pasadena, Calif.-based company’s common stock between Aug. 16, 2007, and May 12, 2008.

IndyMac is accused of misleading investors by downplaying and concealing its growing exposure to non-performing assets, especially option adjustable-rate mortgages and homebuilder construction portfolios. IndyMac also allegedly overstated its capital position to alleviate concerns about capital erosion.

“As a result of defendants’ false statements, IndyMac stock traded at artificially inflated prices,” Coughlin stated. “Then, on May 12, 2008, IndyMac announced its first quarter 2008 financial results, including a net loss of $184.2 million,” pushing its stock down 32 percent over two days.

A third company, Wachovia Corp., was also hit with an investor class action.

Labaton Sucharow LLP announced Monday it filed the lawsuit on June 6 in the U.S. District Court for the Northern District of California on behalf of investors who purchased common shares of the company between May 8, 2006, and April 11, 2008. In addition to Wachovia, former CEO G. Kennedy Thomson, Chief Financial Officer Thomas J. Wurtz and Chief Risk Officer Donald K. Truslow were named as defendants.

“The complaint alleges that Defendants misled investors by falsely representing that Wachovia had strict and selective underwriting and loan origination practices and a conservative lending approach that set it apart from other lenders,” Labaton stated in the press release. “Shortly after last assuring the market of its liquidity, the strength of its underwriting practices, and the adequacy of its reserves, Wachovia reported a surprise quarterly loss, undertook emergency measures to increase capital, and cut its dividend.”

Shares of the Charlotte, N.C.-based company reportedly fell to $25.55 from $27.81 following the news.

The Federal Reserve Board announced Monday its termination of a January 2008 written agreement with ANB Bancshares Inc., in Rogers, Ark.

One good piece of news was offered by Webster Financial Corp., which today said it successfully sold $225 million aggregate liquidation preference of non-cumulative perpetual convertible preferred stock.

“Webster has chosen to raise capital given our belief that a fortress balance sheet is a valuable asset in today’s uncertain economic environment,” Webster Chairman and CEO James Smith said in the announcement. “This capital will support our growth as New England’s bank and further protect us against the unforeseen in today’s volatile and uncertain markets.”

John Folsom v. Indymac Bancorp, Inc., et al
Case number 2:08-cv-03812-SVW-AJW

Bristol County Retirement System, Individually and on Behalf of all Others Similarly Situated vs. Wachovia Corporations, G. Kennedy Thompson, Thomas J. Wurtz, and Donald K. Truslow
Case number C-08-02844 SC


Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of


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