The Federal Home Loan Bank (FHLB) of Chicago is suing several commercial banks, including Bank of America and Wells Fargo, claiming the institutions misrepresented the quality of loans backing securities they sold to the FHLB between 2005 and 2007.
The securities listed in the FHLB's complaints, which were filed in courts in Illinois, California and Washington, totaled more than $4.3 billion in face value and were all AAA-rated when the FHLB of Chicago purchased them.
Citi and Goldman Sachs were also among the defendants named in the suits, according to a Bloomberg report.
‘We contend that the quality of the loans that comprise the pools of securities cited in today's complaints was inconsistent with the description in the pre-purchase documents prepared by the underwriters and issuers of the securities,’ says Matthew R. Feldman, president and CEO of the FHLB of Chicago. ‘Relying on the pre-purchase documents, we invested in these securities with the understanding that we were purchasing higher-quality instruments than turned out to be the case.’
Losses on the securities have resulted in $455 million in write-downs for the FHLB, Feldman says.