Suit against home lender is expanded
New York state and city authorities are suing 26 banks and two accounting firms that did business with Countrywide Financial Corp., claiming that the companies failed to ensure that the beleaguered mortgage company was being honest with investors.
The banks and accounting firms were added as defendants Friday in a class-action lawsuit already pending in California against Calabasas-based Countrywide.
Two of the lead plaintiffs, New York State Comptroller Thomas P. DiNapoli and New York City Comptroller William C. Thompson Jr., oversee several huge government pension funds that invested in Countrywide securities.
The long list of new defendants in the case included underwriters and accounting firms that had participated in the marketing of Countrywide securities. The suit claimed that the company made misstatements about its lending practices, artificially inflating the price of its securities.
“Countrywide’s underwriters had a duty to investigate whether Countrywide was acting honestly,” DiNapoli said. “Investors lost millions and New Yorkers lost their homes. We can’t sit idly by.”
DiNapoli and Thompson said they had also filed new complaints against several Countrywide officers and directors who hadn’t been named as defendants in the previous court action.
Countrywide did not comment.
The two accounting firms added to the suit, which seeks to recover millions of dollars, are Grant Thornton and KPMG. Underwriters named as defendants include some of the world’s largest investment banks: Citigroup Global Markets Inc., JPMorgan Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Inc.
Countrywide rose to become the nation’s largest mortgage lender but has been reeling amid rising defaults, particularly sub-prime loans to borrowers with questionable credit histories.
The crisis has sent it into a pending deal to be acquired by Bank of America Corp. in an all-stock deal worth about $4.1 billion. Last August, B of A invested $2 billion in Countrywide to shore up the lender’s sagging finances.
Some on Wall Street believe that investor concerns about the pending deal could intensify next week when Countrywide reports financial results for last year.
After posting a $1.2-billion loss in the third quarter -- its first quarterly loss in 25 years -- Countrywide declared that it would post an annual profit as well as one for the final three months of the year.
Wall Street has its doubts -- most analysts expect Countrywide to post a fourth-quarter loss -- and will be watching closely Tuesday when the company reports its results.
“Bank of America is going to take a close look at Countrywide’s business and see . . . whether or not it is able to get value from the purchase,” said Sean Egan, managing director of independent ratings firm Egan-Jones Ratings Co.
“With the continued weakness in the market, it’s not as clear . . . that Bank of America is going to be willing to step up,” he said.
A Countrywide spokesman referred questions to Bank of America, but the Charlotte, N.C.-based company declined to comment. It previously has maintained its intent to acquire Countrywide.
Countrywide shares fell 9 cents to $6.02. B of A shares dropped 42 cents to $39.48.
