Bank shares in the US dived overnight after a group of investors united to try force Bank of America to repurchase soured mortgages packaged into $47bn of bonds.
Pimco, BlackRock and the Federal Reserve Bank of New York are among the bondholders which wrote a letter to Bank of America and Bank of New York Mellon, the debt's trustee, citing alleged failures by BoA's Countrywide unit to service loans properly.
Bank of America lost 4.4% yesterday following the Bloomberg report. The largest lender in the US was performing well in early trading following strong Q3 results.
It led Citigroup down 4.38% and JPMorgan Chase 2.64% lower. UK banks are higher however, with Lloyds, Barclays and RBS about 0.6% ahead.
The bondholder group is among investors seeking to use misstatements by sellers, such as faulty appraisals, about the quality of loans packaged into securities to force repurchases, the people said.
Bank of America CEO Brian Moynihan says the bank will "defend our shareholders" by disputing any unjustified demands it buy back defective mortgages. Moynihan says most claims "don't have the defects that people allege".
The letter covered 115 separate mortgage securitisations, with $105bn in original balances.
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