Wall Street Success With Germans Boomerangs: Mortgages
The biggest Wall Street banks have spent more than $93 billion dealing with the fallout from the housing bust, settling disputes with the U.S. government and homeowners. Now they must face the Germans.
HSH Nordbank AG, DZ Bank AG and Sealink Funding Ltd. are among firms that filed more than 30 lawsuits against Wall Street lenders in New York state court last year claiming they were sold flawed mortgage products. The litigation may contribute to about $25 billion in further costs for banks to resolve claims on bonds not backed by the government, Compass Point Research and Trading LLC estimates.
“It is a constant reminder that there is a tremendous amount of legacy costs related to underwriting, servicing and the selling of mortgages,” said Kevin Barker, an analyst with Compass. “We could see several material settlements in the next year as this plays out.”
German investors’ appetite for higher-yielding debt helped fuel the bubble that triggered the global credit crisis, forcing German taxpayers to spend more than 300 billion euros ($406 billion) to shore up the country’s biggest banks, which are now in varying stages of repaying the funds. In “Boomerang,” Michael Lewis’s book about the European debt crisis, he writes that when Wall Street banks “sent their sales forces out to scour the world for some idiot” to invest in their securities, a “disproportionate number of those idiots were in Germany.”