LONDON, Sept 6 (Source: Reuters Breakingviews) – Just when investors in European and U.S. banks thought things couldn’t get worse, 17 financial institutions have been sued over $196 billion-worth of toxic mortgage bonds. Bank shares fell up to 12 percent across Europe with U.S. markets closed. But it’s hard to rationalize the falls on the basis of the lawsuit alone.Investors’ fears are understandable. The central allegation is that banks misrepresented mortgage deals packaged up and sold to quasi-state mortgage giants Fannie Mae and Freddie Mac. Whatever the merits of the case — and Deutsche Bank, and Bank of America have pointed out that Fannie and Freddie are no neophytes in the mortgage world — it’s not good to get into a scrap with the Federal Housing Finance Agency. Moreover, no specific claims for damages have been registered, leading investors to fear the worst. There is also a worry that a successful case could open the gate to private-sector litigation.

Source: Reuters Breakingviews

9/6/2011

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