US Bancorp sued over mortgage-backed securities
US Bancorp, the fifth-biggest U.S. commercial bank by deposits, was sued by an insurer over $47 million in losses tied to investments in mortgage-backed securities.
Woodmen of the World, an Omaha, Nebraska-based insurer, contends a trust overseen by US Bancorp improperly invested in asset-backed commercial paper and mortgage-backed securities, which plummeted in value during the 2008 economic crisis, according to a lawsuit filed in Delaware Chancery Court.
"The tale of wrongdoing in this action is as simple and old-fashioned as a frontier stagecoach heist," the insurer said in the 42-page complaint filed March 15. "Once these investments turned bad, defendants took steps to protect themselves" at the insurer's expense, the suit contends.
Banks and investment firms, such as Morgan Stanley and Bank of America Corp., are facing a wave of suits over mortgage- backed securities in the aftermath of the U.S. housing market's decline. Investors allege they bought hundreds of millions of dollars' worth of the securities because they were marketed as conservative, low-risk investments.
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As home values fell and an increasing number of borrowers defaulted on their mortgages, securities based on thousands of home loans became hard to sell. Investors, who allege they were duped into buying the securities, are seeking to recoup damages over their losses.
Steve Dale, a spokesman for Minneapolis-based US Bancorp, couldn't immediately comment on the suit Thursday.
Woodmen of the World officials allege that a US Bancorp- controlled trust, based in Delaware, failed to act in the best interests of investors when its mortgage-backed investments turned sour.
Trustees, who are also named as defendants in the suit, failed to alert the insurer that it had invested in "commercial paper backed by subprime and Alt-A mortgage-backed securities," Woodmen of the World said in the suit.
"USB and the trustees withheld that information from Woodmen until mid-2008, well after the point at which the Woodmen could have liquidated" its investment portfolio, the suit said. The insurer "is now stuck in an illiquid, unredeemable trust which is not expected to terminate for as many as 30 years."
The insurer wants a Delaware judge to find US Bancorp and trust officials failed to fulfill legal duties owed to investors and hold them responsible for damages. The bank is facing similar claims by the Woodmen of the World in federal court in Omaha.
The Delaware case is Woodmen of the World Life Insurance Society v. US Bancorp, 6260-CC, Delaware Chancery Court (Wilmington).