Archive for the “Wells Fargo” Category

Wells Fargo & Co. will refund $1.4 billion in non-liquid auction rate securities to investors, charities and small businesses nationwide, including about $700 million to California investors. The agreement, which was reached Nov. 18 with the California Attorney General’s Office, puts to rest a California fraud lawsuit that alleged Wells Fargo misrepresented auction rate securities to thousands of investors as safe-as-cash investments.

As part of the settlement agreement, the bank also will pay a $1.9 million fine, plus legal costs and future monitoring expenses incurred by the attorney general’s office.

In April, California Attorney General Edmund G. Brown, Jr. sued three Wells Fargo investment subsidiaries, accusing them of securities fraud by convincing investors to purchase auction-rate securities with false promises of healthy returns and liquidity. The company also was charged with failing to supervise and train its sales agents and selling unsuitable investments.

When the market for auction rate securities collapsed in February 2008, those same investors suddenly found themselves holding essentially worthless investments.

The North American Securities Administrators Association also had launched an inquiry of the Wells Fargo subsidiaries over sales of auction rate securities.

“Wells Fargo convinced thousands of investors to purchase auction rate securities with promises of robust returns and liquidity, but when the market collapsed, investors were left out in the cold,” the California attorney general said in announcing the agreement with Wells Fargo. “Based on misleading advice, investors bought these risky securities. Now, retail investors and small businesses are finally getting their money back.”

Wells Fargo joins more than a dozen brokerages and investment firms that entered into settlement agreements with regulators to buy back auction rate securities from investors. To date, companies have agreed to repurchase approximately $61 billion of the risky investments.

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The fury over auction-rate securities continues to heat up in the state of California, which has filed a lawsuit against three Wells Fargo subsidiaries for allegedly telling California investors that $1.5 billion of the risky securities were “cash-like investments.”

The lawsuit, filed April 23 in San Francisco, focuses on Wells Fargo Investments LLC, Wells Fargo Brokerage Services LLC and Wells Fargo Institutional Services LLC. During a news conference, California Attorney General Jerry Brown said the Wells Fargo firms advertised the auction-rate securities to investors as short-term, liquid investments, similar to money-market accounts. When the market for auction-rate securities collapsed in February 2008, however, investors quickly lost their money.

According to Brown, about 2,400 Californians are unable to sell their ARS investments, leaving many strapped for cash that they need to pay their day-to-day living expenses.

Following the collapse of the auction-rate market, federal and state regulators launched investigations into whether Wall Street institutions deceived investors about the liquidity and risks of auction-rate securities. In August 2008, a number of firms agreed to settle those claims by agreeing to pay fines and buy back billions of dollars of the instruments from retail investors and small businesses.

In addition to California, several other lawsuits recently have been filed over auction-rate securities. On April 17, Braintree Laboratories, a pharmaceutical company based in Braintree, Massachusetts, filed a lawsuit against Citigroup, charging the bank with selling more than $33 million of auction-rate securities and misrepresenting them to Braintree as “money-market investments.”

Also on April 17, Ashland, Inc., which makes Valvoline motor oil and other chemicals, filed a lawsuit against Oppenheimer & Co. over the sale of $194 million of auction-rate securities. According to the complaint, Oppenheimer failed to disclose accurate and truthful information about the liquidity and risks associated with auction-rate securities.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

The financial markets got another dose of bad news this morning when Citigroup - the nation’s second-largest bank by assets - reported a third-quarter net loss of nearly $3 billion as the New York-based bank continues to struggle from exposure to derivatives and bad bets on mortgage-related securities.

It is Citigroup’s fourth consecutive quarterly loss.

The banking giant’s latest earnings results pale in comparison to its financial standing for the same period one year ago when it earned $2.2 billion.

In addition to its poor third-quarter performance, Citigroup has eliminated 11,000 jobs between the current quarter and the previous one, bringing the total number of layoffs to 23,000 so far this year. On the company’s earnings call Oct. 16, Gary Crittenden, Citigroup’s chief financial officer, referred to the latest round of layoffs as “right-sizing.”

Citigroup’s dismal earnings follow another recent setback for the bank when it failed to beat out Wells Fargo for ownership of Wachovia Corp. With financial assistance from the Federal Deposit Insurance Corp. (FDIC), Citigroup initially wanted to put up $2 billion, or $1 a share, for Wachovia’s banking operations, with the FDIC taking on some $270 billion of Wachovia’s most troubled assets. The deal was thwarted, however, when Wells Fargo upped the ante and agreed to buy all of Wachovia’s operations for $15 billion, or $7 a share, and without help from the FDIC. The deal was confirmed by the Federal Reserve on Oct. 14.

As is the case for the majority of financial institutions, 2008 has been a rocky year for Citigroup:

• Citigroup’s losses over the past 12 months have surpassed $20 billion.

• The company has written down the value of investments tied to bad mortgages and other toxic debt by more than $50 billion;

• In May, Citigroup’s CEO announced that the company must rid itself of at least $500 billion in assets in order to get out of businesses tied to risky mortgages and other low-quality debt;

• In August, Citigroup - which is the largest underwriter of auction-rate securities - agreed to buy back roughly $7.5 billion worth of the securities it sold to some 40,000 retail investors. The bank also paid a $50 million civil penalty to the State of New York and a $50 million penalty to the North American Securities Administrators Association; and

• Legal issues continue to heat up from angry investors in Citigroup’s ASTA and MAT Funds. Both the ASTA Fund and MAT Fund were highly leveraged municipal bond funds that borrowed approximately $8 for every $1 raised. Ultimately, the funds suffered massive losses, with both funds losing approximately 90% of their original value. Investors, meanwhile, were repeatedly told by Citigroup that the funds would rebound. Among other things, investors claim Citigroup did not disclose accurate and true information about the funds and their potential risks and failed to institute appropriate risk management practices to prevent the funds’ management from investing in risky and highly speculative investments.

Moving forward, it appears Citigroup has a long road to haul before its financial issues turn the corner. The newly announced plan by the federal government to inject capital into U.S. banks may help. Citigroup - as well as JPMorgan Chase, Bank of America Corp. and Wells Fargo - is set to receive $25 billion.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

The battle for control of the nation’s fourth-largest bank, Wachovia Corp., took a surprise turn Friday night, Oct. 3.  Earlier that same day, Wells Fargo announced its intent to purchase Wachovia in an all-stock deal for $15.1 billion. Upon hearing the news, Citigroup headed to court to block the acquisition, claiming it violated a prior exclusivity agreement that prohibited Wachovia from discussing a merger with any entity other than Citigroup until Oct. 6.

As of Saturday, it appears Citigroup may have the upper hand. A New York federal judge issued a ruling to temporarily block the sale of Wachovia to San Francisco-based Wells Fargo.

Three days before Wells Fargo announced its merger with Wachovia, Citigroup was negotiating a cut-price deal to buy Wachovia’s banking operations for $2.1 billion. As part of the transaction, the Federal Deposit Insurance Corp. (FDIC) would have taken on any loan losses from Wachovia in excess of $42 billion in exchange for a $12 billion stake in Citigroup.

Before the agreement could be finalized, however, Wells Fargo upped the ante, offering Wachovia significantly more money for its operations. Wells Fargo’s proposal also did not entail any financial backing from the FDIC.

Meanwhile, as the spurned suitor, Citigroup reportedly is seeking $60 billion in damages from Wells Fargo for interfering with the initial transaction, according to the Oct. 5 Sunday edition of the New York Times.

Despite the court’s ruling, both Wells Fargo and Wachovia say they intend to move forth with their previously announced merger.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

It was a surprise twist of fate for Wachovia Corp., when the nation’s fourth-largest bank announced that rival bank Wells Fargo would buy its entire business operations in an all-stock deal worth $15.1 billion, or about $7 a share.

In purchasing Wachovia, San Francisco-based Wells Fargo will not require any assistance from the Federal Deposit Insurance Corporation (FDIC). Less than a week ago, Citigroup had sought financial backing from the FDIC as it tried to put together an agreement to buy only the banking portion of Wachovia, not its brokerage and asset management businesses, for approximately $2.16 billion, or about $1 per share. Had that deal materialized, the FDIC would have been responsible for up to $270 billion of Wachovia’s most risky loans.

It was only yesterday that Wachovia announced that it would temporarily halt access to a $9.3 billion investment fund used by some 1,000 colleges to pay salaries and other expenses. The Commonfund Short Term Investments Fund will be liquidated by the end of this year.

Over the past few weeks, rumors of either a merger or government takeover have been rampant for Wachovia. Pummeled by bad mortgages - and, in particular, pay-option mortgages - the company’s stock share price has plunged 75% this year alone. In June, Wachovia’s board of directors fired its longtime CEO Ken Thompson, who previously orchestrated the ill-fated $25 billion purchase of home lender Golden West Financial Corp. in 2006. Golden West Financial is a California lender that specialized in risky payment-option adjustable-rate mortgages.

By comparison, Wells Fargo’s finances have been relatively stable in the face of the subprime crisis and the ongoing credit crunch. Unlike many of its competitors, Wells Fargo holds a substantial portion of its mortgage loans, and does not package and sell them to investors. Nor has the bank been forced to take massive write offs onto its balance sheets.

One of the immediate winners in the Wachovia-Wells Fargo transaction is billionaire investor Warren Buffet. His company, Berkshire Hathaway, is among the largest shareholders in Wells Fargo.

On the downside, however, Wells Fargo is now responsible for more than $120 billion of Wachovia’s option ARMs. The mortgages, which allow borrowers to make smaller payments at the beginning of their loan by deferring part of the interest and then making it up later on, were instrumental in creating Wachovia’s financial downfall this year.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.