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BFCSA: Bank of New York Mellon May Face Suit over $1.12B Loss in RMBS Trusts

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On it goes.......

BNY Mellon May Face Suit over $1.12B Loss in RMBS Trusts

March 04, 2016

Legal headwinds pertaining to business malpractices before the 2008 financial crisis continue to haunt The Bank of New York Mellon Corporation.  As per a Manhattan federal judge ruling, the company must face a lawsuit alleging that the bank has failed in its role as a trustee for 5 residential mortgage-backed securities (RMBS) trusts, which caused investors losses worth $1.12 billion. The news was first reported by Reuters.

U.S. District Judge Gregory Woods said Belgium's Royal Park Investments SA/NV may pursue claims that BNY Mellon failed to undertake necessary action to push the loan sellers to replace or repurchase the bad loans. The concerned 5 trusts date between 2005 and 2007.  Royal Park, which is seeking class-action status on behalf of other investors, accused BNY Mellon of breaching its duties in part due to fear of losing business from other financial services companies. It alleged that BNY Mellon did not accurately scrutinize the risky securities and ignored how the underlying loans were underwritten and serviced.   According to Royal Park, its own RMBS in the five trusts overseen by Bank of New York Mellon have become "completely worthless."  

 While certain claims were rejected by the judge, Royal Park can pursue claims including breach of contract, breach of trust and violations of the federal Trust Indenture Act.  Royal Park has earlier received permission to pursue similar claims against banks like Deutsche Bank AG and HSBC Holdings plc .   Investors who suffered losses due to poor underwritten mortgages in the wake of the financial crisis, in recent years have focused on trustees claiming that the latter failed to force lenders and bond issuers to repurchase those loans. 

Since the financial crisis, while several major U.S. banks have shelled out billions of dollars in legal and regulatory settlements and repurchase claims, the latest claims on BNY Mellon is yet another warrant that banks cannot get away with their past misconducts.   BNY Mellon along with U.S. Bancorp has been under the Federal Deposit Insurance Corp. ("FDIC") radar for alleged negligence as trustees for nearly $2.2 billion worth RMBS sold to the Texas-based failed Guaranty Bank.

Such accusations and subsequent lawsuits will not only continue to adversely impact BNY Mellon's creditability but also lead to a rise in legal costs.  Read more:




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  • Duped
    Duped Tuesday, 22 March 2016


    Banks cannot get away with their past misconducts. I hope our politicians get the message!!!

  • organza
    organza Tuesday, 22 March 2016

    Now that's interesting.. to repurchase must mean the bad eggs end up back on the seller books. How do they then remove the stench I wonder? Surely they don't play pass the parcel in a never ending circle until somebody ends up with the booby prize!

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