2008 International
Conference
Leaking Like A SIV:
The Credit Crisis & Its Impact
on Financial Institutions
Golden Opportunities or Fool’s Gold? • November 5-7, 2008 • San Francisco
Leaking Like A SIV…
MODERATOR:
Raymond DeCarlo, MBA, Senior Managing Director, Frank Crystal & Company
PANELISTS:
Dr. Frederick C. Dunbar, Senior Vice President, National Economic Research
Association (NERA)
George M. Gowen, III, Esq., Member, Cozen O’Connor
Paul Lavelle, President, LVL Claims Services LLC
Brian S. Wanat, MBA, Managing Director, Aon Financial Services Group
Overview
•
•
•
•
•
What’s Happened and Why
Litigation Environment
Insurance Coverage Issues
Broker Perspective
Q&A
It Was Simple Back In the Day…
Lender/Originator
Servicer
Lends money and
manages delinquencies
Receives interest
and principal
Homeowners
Key Players of Subprime MortgageBacked Securities
Homeowner
Mortgage
Servicer
$$
Lender/
Conduit
Mortgages
Mortgages
Banks
$$ Repo,
Credit Line
$$
Trustee
Trust
Moody’s, S&P, Fitch
Rating Agency
ABS/MBS
$$
Underwriter/
Placement Agent
ABS/MBS
$$
Individuals,
Pension Funds,
Insurance Companies,
Mutual Funds,
Hedge Funds, CDOs
Shares
$$
Individuals
Insurer
8%
$700
7%
600
6%
500
5%
400
4%
300
3%
200
2%
100
1%
0%
2000
2001
2002
2003
Avg Effective 1 Year Adjustable Rate (LHS)
Sources: Inside Mortgage Finance, Freddie Mac's Weekly Primary Mortgage Market Survey.
2004
2005
2006
Subprime Originations (RHS)
0
Mortgage Originations ($ BB)
Mortgage Rates (%)
Low Mortgage Rates Helped the
Surge In Subprime Originations
Underwriting Standards Had Begun
to Ease from 2003
Retail Credit Underwriting Trends
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1999
2000
2001
2002
Eased
Source:
2003
No Change
2007 Survey of Credit Underwriting Practice, Office of the Comptroller of the Currency
2004
Tightened
2005
2006
2007
Housing Prices Started to
Show Signs of Decline
1987–2008 Quarterly Data, Rescaled to Q1'1987 = 100
200
Index (Jan. 1987 = 100)
180
160
140
Home Prices
120
Rent
100
80
60
Building Costs
40
20
0
1987
1990
S&P Case-Shiller HPI
Notes & Sources:
1993
1996
Owners' Equivalent Rent
1999
2002
2006
OECD All Buildings Construction Cost Index
Federal Reserve Bank of St. Louis, Bloomberg, LP, Standard & Poor's, Bureau of Labor Statistics.
Values are indexed and in real terms - the monthly data was first adjusted by CPI and then rescaled to Q1'198 7= 100.
Housing Prices
1987–2008 Quarterly Data, Rescaled to Q1'1987 = 100
200
Index (Jan. 1987 = 100)
180
160
140
120
100
80
60
2000
S&P Case-Shiller HPI
Notes & Sources:
2002
2004
2006
Owners' Equivalent Rent
2008
OECD All Buildings Construction Cost
Index
Federal Reserve Bank of St. Louis, Bloomberg, LP, Standard & Poor's, Bureau of Labor Statistics.
Values are indexed and in real terms - the monthly data was first adjusted by CPI and then rescaled to Q1'198 7= 100.
Recent Vintages Are Performing
Worse than their Historical Peers
U.S. Subprime RMBS: Total Delinquency Comparison
40
Delinquency Rate (%)
35
30
25
20
15
10
5
0
6
12
24
36
48
60
72
84
Months of Seasoning
2000
Source: Standard & Poor’s
2001
2002
2003
2004
2005
2006
2007
Delinquency Rates for Subprime and
Prime Loans Have Spiked
Subprime Delinquency Rate (%)
18.0%
Prime Delinquency Rate
3.0%
16.0%
2.5%
14.0%
12.0%
10.0%
50%
Subprime Delinquency Rate
2.0%
8.0%
1.5
%
6.0%
1.0%
4.0%
0.5%
2.0%
0.0%
2000
Source: Bloomberg LP
2001
2002
2003
2004
2005
2006
2007
0.0%
Prime Delinquency Rate (%)
3.5%
20.0%
Subprime Backed Securities Issued in the
Second Half of 2006 Have Collapsed In Value
January 2007–June 2008
100
90
Composite Price
80
70
60
50
40
30
20
4.98
10
0
Jan-07
Mar-07
May-07
July-07
Sep-07
ABX.HE 07-01 BBB
Source: Markit.
Nov-07
Jan-08
Mar-08
May-08
Total Commercial Paper Outstanding ($ BB)
Commercial Paper Outstanding
Has Declined
January 3, 2007–May 28, 2008
$2,300
August 9–10, 2007:
The Fed and other Central Banks
inject US $290 billion in liquidity.
2,200
2,100
2,000
1,900
1,800
1,700
Source: Bloomberg LP.
December 12, 2007:
The Fed announces plans to inject
$40 billion in the next week.
December 18, 2007:
The European Central Bank
injects US $ 500 billion.
The Effective Shutdown
of the Global CDO Market
$200,000
180,000
Issuance ($MM)
160,000
140,000
120,000
-90%
100,000
80,000
60,000
40,000
20,000
0
Source: SIFMA
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2004
2005
2006
2007
2008
Majority of the Write-downs
Are Related to CDOs
Total Write-Downs
Citigroup
22%
Merrill Lynch
UBS
21%
33%
79%
78%
Other
CDO
Sources: Citigroup SEC filings; Merrill Lynch SEC filings; UBS Shareholder Report on UBS's Write-Downs UBS 20-F SEC filing.
67%
Subprime-Related
Securities Filings By Year
January 2007–September 2008
140
126
120
Filings
100
80
94
94
70
60
40
20
0
2007
2008
Actual Count
Annualized Count
Notes & Sources: NERA data based on various sources, including Factiva, Bloomberg, AP News, Securities Law360, Wall Street Journal, BusinessWeek.
Subprime-Related Securities Filings
By Type of Case
Shareholder
Derivative Actions
Other
5%
6%
Suits By
ARS Investors
13%
47%
Shareholder
Class
Actions
14%
Suits By Investors
In Subprime Instruments
15%
ERISA
Sources: NERA collected lawsuits from various sources, including Factiva, Bloomberg, AP News, Securities Law360, Wall Street Journal, and BusinessWeek
Subprime-Related Securities Filings
By Type of Plaintiffs and Defendants
Type of Plaintiff
Plan Participants
11%
ARS Investors
13%
Type of Defendant
Home
Builders
5%
Other
6%
Asset
Management Firm
Insurers
8%
26%
Shareholder
s
52%
Securities
Issuers/
Underwrites
20%
Investors
18%
Other
20%
Sources: NERA collected lawsuits from various sources, including Factiva, Bloomberg, AP News, Securities Law360, Wall Street Journal, and BusinessWeek
Mortgage
Lenders
21%
Litigation Environment
Litigation
Homeowners
Mortgage
$$
Lender/Originator
Servicer
 Predatory Lending
 10b-5 Class Action
 Valuation of Residuals, Servicing
Rights, and Loan Loss Reserves
 Breach of Contract
Mortgages
$$
Trust and Trustee
Underwriter/Placement Agent
Rating Agency
ABS/MBS
$$
Individuals, Pension Funds,
Insurance Companies, Mutual
Funds, Hedge Funds, CDOs
 Breach of Fiduciary Duty
 Class Certification
 Suitability/Prudence
 Misrepresentation/Omission
 Suitability
 Misrepresentation/Omission
 Pricing/Markups
 Investment Guidelines/Risk Management
Shareholders Lawsuits Against
Lenders
• 10b-5 Lawsuits:
– Materially false and misleading statements
• Mortgage assets are overvalued on the balance sheet
• Loan loss reserves are undervalued and inadequate
– Misrepresentations and failures to disclose key information
• Market conditions and their effects on the company’s profitability
• Lack of requisite internal controls leading to defective assumptions
and projections
Avi Gold, et al. v. New Century Financial Corporation, et al. (2007)
Claude A. Reese, et al. v. IndyMac Financial, Inc., et al. (2007)
Michael Atlas, et al. v. Accredited Home Lenders Holding Co., et al. (2007)
Frannie, Freddie
Continued…
Mortgage Purchasers Against
Lenders
• Mortgage Purchasers
– Failure to repurchase mortgages and abide by
other covenants of the repurchase agreement
In re: New Century TRS Holdings, Inc., et al. (2007)
DLJ Mortgage Capital, Inc., v. Sunset Direct Lending, LLC, et al.
(2007)
HSBC Mortgage Services Inc., v. David Piccinini Inc., et al. (2007)
Borrowers Lawsuits Against Lenders
• Borrowers
– Predatory lending
– Unfair and deceptive acts and practices
– Racial discrimination and charging more to
minorities for subprime mortgages than white
borrowers in similar financial situations
Mayor and City Council of Baltimore v. Wells Fargo Bank, N.A., et al. (2008)
NAACP, et al. v. Ameriquest Mortgage Company, a Corporation, et al. (2007)
Continued…
More Lawsuits Against Lenders
• ERISA
– Breach of fiduciary duty by failing to manage
the assets and the plan with prudence and loyalty
Jonie L. Brockmeyer, et al. v. Countrywide Financial Corporation, et al. (2007)
• State
– Violation of state laws, including issuing false
statements, accepting money to process loans it
could not afford, and failing to act in good faith
The State of Ohio v. New Century Financial Corp., et al. (2007)
Lawsuits Against
Issuers/Underwriters
• Mortgage ABS Investors
– Negligence and lack of due diligence on pool of
mortgages underlying the securities
– Misrepresentations about the quality of the
underlying assets
Bankers Life Insurance Company, et al. v. Credit Suisse First Boston
Corporation, et al. (2007)
Lawsuits Against Managers/Advisors
• Institutional Investors
– ERISA, securities laws, and common law
– Fraud and/or negligence concerning quality and
diversification of investments
– Deviation from investment strategy
Bankers Life Insurance Company, et al. v. Credit Suisse First Boston
Corporation, et al. (2007)
In re State Street Bank and Trust Co. Fixed Income Funds Investment
Litig. (2007)
Lawsuits Against Rating Agencies
• Shareholder Class Action Lawsuits
– Misrepresentations and failures to disclose key
information
• Market conditions and their effects on company
profitability
• Assigning excessively high ratings on bonds backed
by risky subprime mortgages
– Failure to reevaluate and downgrade ratings on
bonds during the downturn in the housing
market
Raphael Nach, et al. v. Linda Huber, et al. (Moody’s) (2007)
Claude A. Reese, et al. v. Robert J. Bahash (S&P) (2007)
Lawsuits Against Rating Agencies
Continued…
• Lawsuits by MBS Investors
– Failed to conduct due diligence and willingly
assigned the highest ratings to impaired
instruments to receive substantial fees from the
issuer
– Employed methodologies that were
inappropriate and inaccurate and had not been
updated since 2002
New Jersey Carpenters Vacation Fund, et al. v. HarborView Mortgage
Loan Trust 2006-4, et al. (2008)
Lawsuits By ARS Investors (18*)
• Securities Class Action Lawsuits
– Misrepresentations and failures to disclose key
information
• Auction rate securities are not cash equivalents but complex
long-term financial instruments with 30-year maturity dates
• Auction rate securities were liquid at the time of sale only
because the market was artificially supported and manipulated
by various broker-dealers
• The broker-dealers were acting on behalf of both the issuers (to
pay the lowest rate) and investors (to maximize returns)
Judy D. Waldman, et al. v. Wachovia Corporation, et al. (2008)
David M. Milch, et al. v. The Goldman Sachs Group, Inc., et al. (2008)
* Through June 30, 2008.
Lawsuits For
Corporate Debt Losses
• Shareholder Class Action Lawsuits
– Materially false and misleading statements
• Corporate debt and loan portfolio are overvalued on
the balance sheet
Citiline Holdings, Inc., et al. v. iStar Financial Inc., et al. (2008)
Not Over Yet…
ARM Reset Schedule
$800
$680
Dollars (Billions)
$700
$600
$515
$500
$500
$400
$400
$300
$200
$100
$0
2007
2008
Subprime
Source: Bank of America report, Robert Lacoursiere, 6/22/2007
Total
Insurance Coverage Issues
• Two Markets
– Financial Institutions Markets
• Rates and Coverage Terms Tougher
– Non-Financial Institutions Markets
• Still Very Competitive
• How will the Government be as a Shareholder?
Insurance Coverage Issues
• Auction Rate Securities
– Where do they fit?
• Side A
– Not so fun anymore
• Conduct and Restitution Issues
– Meat on the bones???
Broker Perspective
Where do clients stand in the D&O Marketplace?
D&O insurance coverage / price continuum
Hardest
Softest
Financial Institutions
Pharmaceutical /Life Sciences
Implications:
– The Good News:
REIT’s/Homebuilders
Fortune 250
Healthcare
Tech/Telecom
Fortune 500
IPO’s
Conglomerates
Company
Transportation
Energy
Retail
Mid/cap
Utilities
Manufacturing
Basic Materials
Small Cap
Private/Non Profit
Actual Underwriting is
occurring
– It’s all about Differentiating & Positioning
– The Bad News: Actual Underwriting is
occurring
– If you happen to be a risk with acute subprime/credit exposure you’re facing a
challenge
Quarterly Index of D&O Pricing
•
Implications:
– Pricing Index tracks premium changes relative to the base year of 2001
– The 2008 2Q index has dropped 6% from the same quarter last year
– While the D&O index continues to decline, signs of leveling have begun to show
– Due to the recent financial crisis, continued leveling and potential increases in the D&O market
place are possible in the near future
Quarterly Index of D&O Pricing
S&P Financials Sector vs. All Other S&P Sectors
Q1 2002 - Q2 2008 l BASE YEAR 2001
3.75
3.53
S&P Financials Sector
All Other S&P Sectors
3.25
3.06
3.01
2.65
Index Value
2.75
2.61
2.26
2.54
2.43
2.25
2.25
1.77
2.33
2.40
2.11
2.35
2.16
2.27
2.07
2.03
1.90
1.75
1.52
1.77
1.58
1.25
1.83
1.78
2.03
1.70
1.69
1.53
1.75
1.41
1.52
1.53
1.73
1.39
1.38
0.99
1.50
1.63
1.27
1.56
1.35
1.49
1.32
1.30
1.35
1.41
1.26
1.25
1.15
1.22
1.15
0.81
0.75
08
20
2
Q
08
20
1
Q
07
20
4
Q
07
20
3
Q 07
20
2
Q
07
20
1
Q
06
20
4
Q
06
20
3
Q
06
20
2
Q
06
20
1
Q
05
20
4
Q
05
20
3
Q
05
20
2
Q 05
20
1
Q
04
20
4
Q
04
20
3
Q
04
20
2
Q
04
20
1
Q
03
20
4
Q
03
20
3
Q
03
20
2
Q
03
20
1
Q 02
20
4
Q
02
20
3
Q
02
20
02
20
2
Q
1
Q
Quarterly Index of D&O Pricing
S&P Financials vs. All Other S&P Sectors
Q1 2002 - Q3 2008 l BASE YEAR 2001
3.75
3.53
S&P Financials Sector
All Other S&P Sectors
3.25
3.06
3.01
2.65
Index Value
2.75
2.61
2.26
2.54
2.43
2.25
2.25
1.77
2.33
2.40
2.11 2.35
2.16
2.27
2.07
2.03
1.90
1.75
1.52
1.77
1.58
1.25
1.83
1.78
2.03
1.38
0.99
1.70 1.69 1.41
1.52
1.53
1.75 1.73
1.53
1.56
1.58
1.50
1.63 1.35
1.27
1.41
1.39
1.49
1.32 1.30 1.35
1.25
1.15
0.81
1.26 1.22
1.15
1.02
0.75
08
20
3
Q 08
20
2
Q 08
20
1
Q 07
20
4
Q 07
20
3
Q 07
20
2
Q 07
20
1
Q 06
20
4
Q 06
20
3
Q 06
20
2
Q 06
20
1
Q 05
20
4
Q 05
20
3
Q 05
20
2
Q 05
20
1
Q 04
20
4
Q 04
20
3
Q 04
20
2
Q 04
20
1
Q 03
20
4
Q 03
20
3
Q 03
20
2
Q 03
20
1
Q 02
20
4
Q 02
20
3
Q 02
20
02
20
2
Q
1
Q
Quarterly Index of D&O Pricing
S&P Banks vs. All Other S&P Industry Groups
Q1 2002 - Q3 2008 l BASE YEAR 2001
5.76
6.00
S&P Banks Industry Group
All Other S&P Industry Groups
5.00
Index Value
4.00
3.00
2.57
2.65
2.06
2.54
1.99 2.44 2.57
2.36
2.37
2.00
2.20
2.06
1.53
1.51
1.34
1.54
1.00
1.14
1.32
2.12
0.81
2.02
2.02
1.43
1.90
1.31
1.26
1.74 1.16 1.79 1.79
1.73 1.76
1.10
1.60
1.59
1.06
1.51
0.94
1.43
1.41
0.84
1.31 0.76 1.27
0.77
0.77
0.72
1.21 1.22
1.19
0.57
1.06
0.00 0.00
0.00
08
20
3
Q 08
20
2
Q 08
20
1
Q 07
20
4
Q 07
20
3
Q 07
20
2
Q 07
20
1
Q 06
20
4
Q 06
20
3
Q 06
20
2
Q 06
20
1
Q 05
20
4
Q 05
20
3
Q 05
20
2
Q 05
20
1
Q 04
20
4
Q 04
20
3
Q 04
20
2
Q 04
20
1
Q 03
20
4
Q 03
20
3
Q 03
20
2
Q 03
20
1
Q 02
20
4
Q 02
20
3
Q 02
20
02
20
2
Q
1
Q
Marketplace Trends: Historical Drivers of
Securities Litigation
PSLRA
Dec 95
Designed to reduce the number of shareholder suits and eliminate professional plaintiffs.
Sarbanes-Oxley
April 02
Created a stringent environment and enhanced consequences as respects corporate
governance.
Opt Out Phenomenon
Nov 03 - present
Institutional shareholders opting out of class action settlements, i.e. WorldCom
Secondary Liability
Phenomenon
July 04
Suits against secondary actors in addition to issuer and its directors and officers making
cases larger and more expensive to resolve.
Dura Loss Causation
April 05
Supreme Court decision created substantial hurdles for plaintiffs to plead Loss Causation.
Milberg Weiss / Lerach
Investigations
May 06 - present
Changing of the guard as respects the predominant securities class action plaintiff firms?
Stock Option Backdating
June 07
Has resulted in increased shareholder derivative litigation, not class action litigation
Supreme Court
Tellabs Decision
June 07
Supreme Court raised pleading standard and held that in determining whether the
pleaded facts give rise to a "strong inference" of scienter, a court must take into account
"plausible opposing inferences”.
Bull Market
October 02 - July 07
Second longest uninterrupted bull market in history, 2002 - 2007.
Current Claims
Inventory
04-present
Hundreds of shareholder actions are pending with estimated values in the tens of billions
of dollars.
Opt-Out Suits
07 - present
Recent opt-out plaintiffs have received significantly increased settlements from that which
they would have as part of the class
Sub-prime and
Credit Crisis
July 07 - present
Sub-prime mortgage defaults cause massive losses for the financial services industry,
causing a ripple effect through the broader marketplace and a possible economic turndown.
Marketplace Trends: Lead Plaintiffs and
Opt-Out Settlements
• Implications:
–
–
–
–
–
Institutions served as lead plaintiffs in almost 60% of 2007 settlements
As Institutional Investors and Pension Funds continue to take a lead role in more suits, the settlement severity has increased
dramatically. In 2007, median settlements with a Public Pension Plan as the lead plaintiff were $18.0 million vs. $6 million for
those settlements that did not have a Public Pension Plan as a lead Plaintiff
If Institutional Investors or Pension Funds are not controlling the class action they may elect to opt-out and receive considerably
more than those in the class. In February 2007, the largest settlement in opt-out history was announced. The University of
California recovered $246M in a suit against Time Warner. This settlement represents an estimated 16-24 times what the University
would have received in the class.
In November 2007, Qwest Communications settled the opt-out suits in conjunction with its 2002 financial turmoil. By opting out of
a $400 million class action settlement reached in 2005, the Colorado Public Retirement Association (PERA) increased its share of
the settlement from $400,000 to $15.5M.
In most opt-out cases the policy limits have already been eroded by the securities class action and/or derivative claims. The Qwest
case illustrates a trend towards significant opt-out litigation after class settlements, which threatens to increase both litigation costs
and settlement expenses in securities litigation. Class litigants may feel pressure to increase class settlement amounts, in an effort to
deter opt-outs.
ERISA
SEC
Shareholder
Class Action
Derivative
Actions
Directors,
Officers,
& Entity
Justice
Department
Opt-Out
Suits
State
Attorneys
General
Source: OakBridge Insurance Services
Marketplace Trends: Securities Litigation Frequency
The number of securities-related class actions is trending upward
– 177 securities class actions were filed in 2007 (50% increase vs. 2006)
– 156 securities class actions have been filed year to date
– Causes include, but are not limited to: credit market crisis (subprime mortgages, CDOs, MBSs, etc), large
balance sheet write-downs and overall stock market volatility
– The SCA count for the first half of this year implies an annualized 12-month filing rate of 210 class
actions. This total would represent the highest annual filing rate since 2004, a year of numerous
corporate scandals.
– Potential for “pre-loss” overreaction by Insurers, leading to more judicious deployment of insurance
capital (restriction in capital => leveling of pricing?)
Federal Securities Fraud Class Action Litigation
As of 9/29/08
# Suits Filed Per Year
•
267
242
231
188
226
216
210
32 of the 177
filings include
subprime issues
23 of the 118
filings included
stock options
backdating
497
312 of the
497 include
IPO
Allocation
Allegations
210
Proj.
237
182
173
1995
Pre-Reform
1996
156
2007
2008
118
111
1994
177
1997
1998
1999
2000
Post-Reform
Sources: Stanford Securities Class Action Clearinghouse
2001
2002
SOX Passed
2003
2004
PCAOB
2005
2006
Marketplace Trends: Securities Claims Settlement Severity
• Implications:
–
–
–
–
2007 was the first decline in average severity after increasing for six consecutive years (2000-2006)
Median claim size has been relatively stable since 1996 +/- $3.5M
Average and Median settlement size is up year to date ($41.39M and $9.25M respectively)
Severity risk impacts excess participation and pricing
Severity: Securities
Class Action Litigation
D&O Settlements 1995–2008
D&O Settlements
1995–2008
Excluding
$1B, Outliers & Auction
Rate Securities
(Excluding $1B, Outliers, & Auction Rate Securities; dollars in millions)
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
174
168
155
140
130
148
134
160
171
119
146
111
115
83
Avg **
$11.17
$9.41
$10.62
$12.07
$14.72
$14.04
$19.69
$20.94
$22.12
$32.03
$33.89
$38.07
$26.89
$41.39
Median [includes $1B+]
$3.65
$4.15
$4.40
$5.43
$4.05
$4.50
$5.43
$5.53
$5.60
$7.00
$8.08
$7.26
$7.74
$9.25
St. Dev **
$20.36
$19.88
$23.61
$19.79
$40.75
$31.97
$48.46
$59.09
$57.75
$71.56
$103.16
$77.51
$70.38
$133.29
2
1
1
2
5
4
6
7
9
11
15
12
9
6
Number of Settlements
$100M+ [includes $1B+]
** Excludes settlements of $1B or greater
Source: Aon FSG, Stanford Securities Class Action Clearinghouse ad of 09/08/08
Note: Settlement information generally reflects settlements as of the date a settlement is announced. As additional parties reach settlements and they
become final, settlement values and dates occasionally change. Aon FSG adjusts settlement figures in this chart to reflect the changes.
Marketplace Trends: Federal Filings 20022008 (6 Month Intervals)
155
160
Number of Federal Filings
140
120
133
32
Standard, Options Backdating, Subprime and Subprime/Auction
Rate Securities Federal Filings
139
135
127
15
15
121
118
115
9
103
100
30
12
49
70
118
123
124
120
112
61
9
113
9
3
5
15
91
40
84
72
65
63
61
46
20
0
4
77
73
80
60
22
1H
2H
1H
2002
Standard Filings
2H
1H
2003
Other Cases
2H
2004
1H
2H
2005
Options Backdating
Source: NERA Economic Consulting
Notes: Other Cases include IPO Laddering, Mutual Fund Market Timing, and Analyst Cases.
1H
2H
2006
Subprime
1H
2H
2007
1H
2008
Auction-Rate Securities
State of Mortgages Past Due: 2003 - Present
Ratio Past Due
Ratio of Mortgage Borrowers 60 Days or More Past Due
Source: Newsroom.TransUnion.com
Quarter
Credit Crunch and Financial Institutions
 The plaintiffs’ bar is in full-attack mode.
– With major write-downs continuing, the onslaught of securities litigation has spread from subprime lenders, to
Losses and Litigation
investment banks holding risky debt, to commercial firms caught up in the credit crunch and associated
macroeconomic downturn. Law firms’ “subprime task forces” are leading the charge.
– According to Bloomberg, approximately $434.2 billion has been sought and raised in capital infusions from domestic
and foreign investors.
– A recent study by Bridgewater Associates releases a new estimate on write-downs at $1.6 Trillion, exceeding
the International Monetary Fund's $945 billion estimate.
Writedowns and Credit Losses
Citigroup
Wachovia
Merrill Lynch
Washington Mutual
UBS
HSBC
Bank of America
JPMorgan Chase
Morgan Stanley
IKB Deutsche
Royal Bank of Scotland
Lehman Brothers
Credit Suisse
Deutsche Bank
Wells Fargo
Credit Agricole
Barclays
Canadian Imperial (CIBC)
Fortis
Bayerische Landesbank
HBOS
ING Groep
Société Générale
Mizuho Financial Group
National City
Natixis
Other Banks
Total:
$60,800,000,000
$52,700,000,000
$52,200,000,000
$45,600,000,000
$44,200,000,000
$27,400,000,000
$21,200,000,000
$18,800,000,000
$15,700,000,000
$14,800,000,000
$14,100,000,000
$13,800,000,000
$10,400,000,000
$10,400,000,000
$10,000,000,000
$8,800,000,000
$7,600,000,000
$7,200,000,000
$7,100,000,000
$6,900,000,000
$6,800,000,000
$6,700,000,000
$6,600,000,000
$6,100,000,000
$5,400,000,000
$5,300,000,000
$104,200,000,000
$590,800,000,000
Securities Class
Action
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Note:
Includes Auction Rate Securities
Sources: Bloomberg “Banks'
Subprime-Related Losses Surge to
$591 Billion” 09/29/08.
Stanford Securities Class Action
Clearinghouse 09/30/08
Subprime Fallout: Subprime Related Securities Class Actions
ACA Capital Holdings
Fremont General Corp.
Morgan Asset Management, Inc.
Accredited Home Lenders
Fremont General Corp. (Preferred Securities)
Morgan Keegan Funds/Regions Financial Corp.
Ambac Financial Group
General Electric Co.
Morgan Stanley & Co., Inc.
American Home Mortgage Investment
Goldman
Sachs
Group
(Auction
Rate)
Morgan
Subprime Related Securities
Class Actions as of August
13, Stanley
2008& Co., Inc. (Auction Rate)
American International Group, Inc.
HarborView Mortgage Loan Trust
Municipal Mortgage & Equity, LLC
Bank of America (Auction Rate)
Home Equity Mortgage Trust
NASDAQ
BankAtlantic Bancorp.
HomeBanc Corp.
National City Corp.
Bear Stearns Companies
Hovnanian Enterprises
National City Corp./Harbor Savings Federal Bank
BankUnited Financial Corporation
Huntington Bancshares Inc.
NetBank, Inc.
Beazer Homes USA
Impac Mortgage Holdings, Inc.
New Century Financial
Blackstone Group
IndyMac Bancorp
Nomura Asset Acceptance Corp.
Calamos Global Dynamic Inc Fund (Auction Rate)
IndyMac Bancorp (Option ARM)
Northern Trust Corporation
Canadian Imperial Bank of Commerce (CIBC)
iStar Financial
NovaStar Financial
Care Investment Trust
J.P. Morgan Acceptance Corp.
Oppenheimer Holdings (Auction Rate)
CBRE Realty Finance, Inc.
J.P. Morgan Chase (Auction Rate)
Opteum, Inc.
Centerline Holding Company
KKR Financial Holdings, LLC
PMI Group
Charles Schwab Corp.
Lehman Brothers
Perini Corporation
CIT Group, Inc.
Levitt Corp.
Premium Connections, Inc.
Citigroup Alternative Investments LLC
Luminent Mortgage Capital
Radian Group, Inc.
Citigroup Global Markets: MAT 5 Shares
MBIA, Inc.
RAIT Financial Trust, Inc.
Citigroup Inc.
McGraw-Hill Companies
Raymond James Financial (Auction Rate)
Citigroup Inc. (Auction Rate)
Merrill Lynch & Co., Inc.
Royal Bank of Canada
Citigroup Mortgage Loan Trust Inc.
Merrill Lynch (Auction Rate)
Security Capital Assurance, Ltd.
Coast Financial Holdings
Merrill Lynch/First Republic
Sallie Mae/SLM Corp.
CompuCredit Corp.
MGIC Corp.
Schwab YieldPLUS Funds
Countrywide Financial Corp.
MoneyGram International
Société Générale
Countrywide Home Loans Servicing
Moody’s Corporation
Standard Pacific Corp.
Countrywide Series A & Series B
State Street Corp.
Credit Suisse Group
Stifel Financial Corporation
Deutsche Bank (Auction Rate Securities)
Suntrust Banks, Inc. (Auction Rate)
Downey Financial Corp.
Swiss Reinsurance Company
E*Trade Financial
Tarragon Corp.
E*Trade Financial (Auction Rate)
TD Ameritrade (Auction Rate)
Evergreen Investment Management Co.
Thornburg Mortgage, Inc.
Fannie Mae
Toll Brothers, Inc.
FCStone Group, Inc.
UBS AG
Federal Home Loan Mortgage Corp.
USB AG (Auction Rate)
Fidelity Management & Research Co.
Wachovia Corp.
Fifth Third Bancorp
Wachovia Corp. (Auction Rate)
Fimalac, S.A.
Washington Mutual, Inc.
First American Corp.
Wells Fargo (Auction Rate)
First Home Builders of Florida
WSB Financial Group
First Marblehead Corporation
First Trust Portfolios, L.P.
Source: Stanford Securities Class Action Clearinghouse 09/30/08
Franklin Bank Corp.
Q&A
Many thanks to
•
•
•
•
•
Raymond DeCarlo
Dr. Frederick Dunbar
George Gowen III, Esq.
Paul Lavelle
Brian Wanat