Visa, MasterCard, banks in $7.25 billion retail settlement

By Jessica Dye

NEW YORK (Reuters) - Visa Inc, MasterCard Inc and banks that issue their credit cards have agreed to a $7.25 billion settlement with U.S. retailers in a lawsuit over the fixing of credit and debit card fees in what could be the largest antitrust settlement in U.S. history.

The settlement, if approved by a judge, would resolve dozens of lawsuits filed by retailers in 2005. The card companies and banks would also allow stores to start charging customers extra for using certain credit cards in an effort to steer them toward cheaper forms of payment.

The settlement papers were filed on Friday in Brooklyn federal court.

Swipe fees - charges to cover processing credit and debit payments - are set by the card companies and deducted from the transaction by the banks that issue the cards, essentially passing on the cost to merchants, the lawsuits said.

The proposed settlement involves a payment to a class of stores of $6 billion from Visa, MasterCard and more than a dozen of the country's largest banks who issue the companies' cards. The card companies have also agreed to reduce swipe fees by the equivalent of 10 basis points for eight months for a total consideration to stores valued at about $1.2 billion, according to lawyers for the plaintiffs.

The deal calls for merchants to be allowed to negotiate collectively over the swipe fees, also known as interchange fees.

Merchants would also be required to disclose information about card fees to customers, and credit card surcharges would be subject to a cap, according to the settlement papers. Surcharge rules would not affect the 10 states that currently prohibit that practice, which include California, New York and Texas.

An additional $525 million will be paid to stores suing individually, according to the documents.

"This is an historic settlement," said Bonny Sweeney, a lawyer for the plaintiffs. The settlement "will help shift the competitive balance from one formerly dominated by the banks which controlled the card networks to the side of merchants and consumers," said Craig Wildfang, who also represented the plaintiffs.

Noah Hanft, general counsel for MasterCard, said the company believed its interests were "best served by an amicable resolution" of the case. Visa Chief Executive Officer Joseph Saunders said the settlement was in the best interest of all parties and did not expect the settlement to impact its current guidance.

Not everyone was pleased with the proposed settlement, however. One class plaintiff, the National Association of Convenience Stores, rejected the settlement in a statement on Friday from its president, Tom Robinson, who is also president of Robinson Oil Corp.

"Not only does the proposed settlement fail to introduce competition and transparency, it actually provides Visa and MasterCard with the tools to continue to shield swipe fees from market forces," Robinson said.

The proposed considerations are a far cry from the $50 billion in swipe-fees paid each year by U.S. retailers, he said.

The American Bankers Association, a trade group whose members include the bank defendants, said retailers, not consumers, stood to gain the most from the proposed settlement.

"Big-box retailers will likely seize this opportunity to ask Congress for even more handouts," said ABA President Frank Keating in a statement, referring to the Durbin amendment passed by Congress in 2010 limiting debit-card swipe fees - a move that banks say resulted in an $8 billion windfall for retailers.

"The legal process worked and should send a signal to Congress that it is wrong to pick winners and losers in a complex dispute between two industries," the Electronic Payment Coalition, which represents payment networks, said in a statement.

The plaintiffs charged that Visa and MasterCard colluded directly and indirectly through the issuing banks to keep merchants from finding ways to mitigate credit-card costs.

Plaintiffs in the case include supermarket chain Kroger Co, pharmacy chain Rite-Aid Corp and shoe retailer Payless ShoeSource, as well as trade associations such as the National Association of Convenience Stores, National Grocers Association and the American Booksellers Association.

The National Retail Federation, a trade group representing retailers, said that "the test will be whether the injunctive relief is meaningful. Unless it is, the card market will stay broken and neither merchants nor their customers will achieve a long-term benefit."

A number of banks that issue Visa and MasterCard cards, including JP Morgan Chase & Co, were also named as defendants in the lawsuit, along with Visa and MasterCard's payment networks.

A spokeswoman for Bank of America NA said it believed the terms of the settlement were fair. JP Morgan declined to comment. Citigroup Inc acknowledged its role in the deal and declined further comment.

A spokesman for Wells Fargo said the company was pleased to put the matter behind it.

An estimated 7 million retailers will be affected by the settlement, according to lawyers for the plaintiffs.

Visa and MasterCard have been plagued by legal problems over their payment-card policies for the last decade. In 2003, the companies paid a combined $3 billion to settle a lawsuit by stores over their "honor all cards" policies, which tied acceptance of credit to debit cards.

The U.S. Department of Justice brought and settled a civil antitrust suit against Visa and MasterCard in 2010. As part of the consent decree, the companies agreed to drop certain policies that kept stores from steering their customers to cheaper forms of payment.

But the decree left intact policies that prohibit stores from charging customers more when they use certain payment cards, according to a July 2011 court filing from plaintiffs.

The defendants denied that any collusion took place.

Visa said its share of the settlement is $4.4 billion, and Mastercard said its share is $790 million.

In December, Visa announced it set aside an additional $1.57 billion to cover the cost of a potential settlement in the case, bringing its litigation reserve balance to $4.28 billion, according to a regulatory filing. MasterCard in the fourth quarter of 2011 recorded a $770 million pretax charge, as an estimate of its potential liability in the case, a filing with the U.S. Securities and Exchange Commission showed.

MasterCard said in a statement that it expected to incur an additional $20 million pre-tax charge in its 2012 second quarter financial statements to cover its portion of the settlement.

Visa and MasterCard together accounted for more than 80 percent of U.S. credit and debit card purchases by volume in 2011, according to data from the Nilson Report, a California trade publication.

Albert Foer, president of think-tank the American Antitrust Institute, said that the settlement should create more transparency for consumers at the cash register. Because merchants had been forbidden from charging customers extra for costlier payment forms, they often built that cost into the retail price, he said.

While it may not lead to lower prices, "it gives the consumers some choice and it should ultimately mean a better deal for everybody," Foer said. "In the longer run, it should help keep retail prices under better control."

It may also be the last time retailers are allowed to take Visa and Mastercard to court over interchange fees. The proposal provides for extensive litigation releases that would keep stores that join the settlement from suing over a wide range of issues relating to fees and anti-steering restraints.

The case is In re: Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, in the U.S. District Court for the Eastern District of New York, no. 05-1720.

(Reporting by Jessica Dye; editing by Bernard Orr, Andre Grenon and Carol Bishopric)

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Fannie Mae seeks $4.6 billion in aid after Q4 loss (Reuters)

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BofA $8.5 billion deal returned to NY state court (Reuters)

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Illinois to Receive $1 Billion in Multistate Mortgage Settlement (ContributorNetwork)

According to the Associated Press, Illinois Attorney General Lisa Madigan announced Illinois would receive about $1 billion in a settlement involving five of the biggest mortgage lenders. The settlement involves numerous other states, which are to receive $25 billion from Ally Financial, Bank of America, Citigroup, JPMorgan Chase and Wells Fargo.

Madigan's office noted Illinois' portion will be used to provide assistance to residents who have lost their homes, are close to defaulting on their home mortgages or owe more than what their homes are worth. Here are some facts about the attorney general's and the state's efforts to fight mortgage problems for residents:

* The Chicago Sun-Times reported in September that Madigan filed lawsuits against four Chicago-based firms, including ZeTrust Legal Services, Legal Modification Network, Loan Litigators International and Exelpol Management and Consulting.

* The lawsuits allege the companies participated in mortgage rescue scams that included charging customers for little or no help after promising to assist with foreclosure avoidance.

* Madigan also sued Standard and Poor's last month after receiving numerous complaints that the company was assigning high ratings on risky mortgages, according to WBEZ.

* This recent lawsuit specifically argues that Standard and Poor's engaged in "unfair, deceptive and illegal business practice(s)," but the company has continued to state the claims are without merit.

* In 2010, the Illinois attorney general, along with other attorney generals across the nation, launched a probe into mortgage practices to make sure mortgage providers would acting fairly and complying with the law, reported WLS.

* She also filed legislation that requires mortgage lenders to provide additional information to homeowners that are currently going through foreclosure.

* DS News noted that last year the Illinois Supreme Court established a special committee that specifically studies and creates proposals to help families facing foreclosures on their homes.

* The committee also seeks to improve the judicial process of home foreclosures across the state, which has become a major problem and in 2010, about 70,000 mortgage foreclosures were pending in Cook County alone.

* In September, the state announced it would be launching a program called "Illinois Hardest Hit," which would use $345 million in federal aid to provide zero-interest loans to about 15,000 families in Illinois, according to another Associated Press article.

* Qualifying families, those who have suffered a 25 percent drop income, are eligible to receive up to $25,000 over an 18-month period and the loans last for 10 years.

Rachel Bogart provides an in-depth look at current environmental issues and local Chicago news stories. As a college student from the Chicago suburbs pursuing two science degrees, she applies her knowledge and passion to both topics to garner further public awareness.

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Investors target JPMorgan over $95 billion of RMBS (Reuters)

NEW YORK (Reuters) – A law firm that led mortgage bondholders to extract a $8.5 billion settlement from Bank of America Corp (BAC.N) is turning its sights on JPMorgan Chase & Co (JPM.N).

Houston-based Gibbs & Burns LP said on Friday its clients have instructed trustees overseeing $95 billion of securities issued in the housing boom by JPMorgan's affiliates to investigate whether ineligible mortgages were included in collateral behind the bonds.

Gibbs & Burns said its clients represent holders of more than 25 percent of the voting rights on 243 residential mortgage backed securities.

JPMorgan spokeswoman Kristin Lemkau declined to comment.

The development marks an escalation of legal challenges from the housing bust for JPMorgan. The largest U.S. bank by assets, JPMorgan has been setting aside billions of dollars for claims that mortgage bonds sold by Chase bank, and by companies it bought, were backed by fraudulent loans or otherwise flawed.

Mortgage securities typically set a threshold of 25 percent of voting rights above which organized investors gain additional legal power over the pools, said Greg Taxin of Spotlight Advisors LLC, which advises pension funds on mortgage bond investments.

"This is what started the ball rolling that ultimately led to the $8.5 billion settlement with Bank of America," said Taxin. "The best defense for JPMorgan has been that the investors were not coordinated."

Paul Miller, an analyst at FBR Capital Markets, said, "It was only a matter of time before they went after JPMorgan."

The settlement with Bank of America is pending and being challenged in court as insufficient by other holders of its mortgage bonds.

Kathy Patrick of Gibbs & Bruns LLP said in a statement, "Our clients continue to seek a comprehensive solution to the problems of ineligible mortgages in RMBS pools and deficient servicing of those loans."

The investors represented by the firm own securities issued in 2005, 2006 and 2007. They include bonds from Bear Stearns and Washington Mutual, two firms which JPMorgan took over during the financial crisis.

JPMorgan is in a better position than Bank of America to deal with the legal claims, said Miller. It is not clear that the bank is responsible for mortgages made by Washington Mutual, which the government put into JPMorgan's hands after it failed, he said.

Bank of America, in contrast, had bought mortgage-maker Countrywide, the source of most of its problem securities, on its own before the crisis.

Also, JPMorgan has already booked litigation expenses when it added to reserves. "For something like this, they are well-reserved," Miller said.

JPMorgan shares closed up 14 cents to $31.90 on the New York Stock Exchange on Friday.

(Reporting by David Henry; editing by Carol Bishopric)

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Morgan Stanley settles with MBIA, sets $1.8 billion charge (Reuters)

(Reuters) – Morgan Stanley (MS.N) agreed to give up insurance claims against MBIA Inc (MBI.N) in exchange for a $1.1 billion payment from the ailing insurer, ending a two-year legal fight over guarantees on mortgage bonds.

The deal, announced on Tuesday, is the latest move by Morgan Stanley Chief Executive James Gorman to clear away vestiges of the financial crisis and put the Wall Street bank on a more stable path.

The settlement will cause Morgan Stanley to take a $1.2 billion charge in the fourth quarter after accounting for a tax benefit, but it will also remove risky assets from company's balance sheet that have led to big swings in its quarterly earnings over the past four years.

Additionally, the deal will shore up Morgan Stanley's capital levels under tougher rules that start coming into effect in 2013.

In a statement, Gorman said the settlement had been a "top priority" for Morgan Stanley this year, "consistent with our efforts to build capital and de-risk the balance sheet."

The settlement stems from credit-default swaps (CDS) that Morgan Stanley had entered with MBIA several years ago to protect against losses on mortgage bonds.

MBIA, a bond insurer, historically focused on municipal bonds but as the U.S. real-estate market heated up last decade, it sold large numbers of CDS on mortgage-backed securities and other structured finance products.

MBIA's bets on CDS started souring as the financial crisis ramped up, leading the company to split itself into two parts: a municipal guarantee business and a structured finance unit. MBIA announced the restructuring in 2009 after receiving approval from state insurance regulators.

A group of 18 banks, including Morgan Stanley, objected to the restructuring in court, arguing that it might leave the insurer unable to pay out its structured finance obligations.

As part of the settlement, Morgan Stanley agreed to end its legal objections to MBIA's restructuring, and MBIA agreed to drop a lawsuit pertaining to the quality of the bonds underlying the CDS contracts.

MBIA will pay Morgan Stanley $1.1 billion to settle legal claims, a person familiar with the matter told Reuters.

The insurer's structured finance division, known as MBIA Insurance, will pay the settlement using a loan from its municipal bond division called National Finance, according to another person familiar with the deal.

All but five banks have settled with MBIA, including HSBC Holdings PLC (HSBA.L), Royal Bank of Scotland PLC (RBS.L) and Wells Fargo & Co (WFC.N). Those still pursuing claims include Bank of America Corp (BAC.N) and UBS AG (UBSN.VX).

An MBIA spokesman confirmed that there was a settlement with Morgan Stanley, but declined to comment on the $1.1 billion settlement figure.

"We are continuing to work toward resolving all the litigation," said Kevin Brown, a spokesman for MBIA. "We're talking to most, but not all, the parties."

Robert Giuffra Jr, a partner at Sullivan & Cromwell and lead counsel for banks that are still suing MBIA, said the plaintiffs will continue to fight its restructuring.

Benjamin Lawsky, financial services superintendent for the state of New York, said his agency will continue to work with the remaining companies and MBIA to seek resolutions.

A WIN FOR BOTH SIDES

The Morgan Stanley-MBIA settlement will benefit both parties, investors said, though it may represent a bigger win for MBIA.

MBIA shares closed up 0.7 percent on Tuesday at $11.48, having hit $12.60 after the deal announcement. Morgan Stanley fell 1.4 percent to end the day at $15.17, but had risen as high as $16.55 earlier in the day.

The settlement will remove a big swing factor from Morgan Stanley's quarterly earnings results. Because the CDS contracts turned MBIA into a major counterparty of the bank, the widening or narrowing of its credit spreads resulted in big non-cash losses and gains.

Getting rid of MBIA exposure will free up $5 billion worth of capital for Morgan Stanley and improve its Tier 1 common capital ratio by 75 basis points under upcoming rules. Under existing rules, it will reduce Morgan Stanley's Tier 1 common ratio by 30 basis points.

Gorman has been on a mission to improve Morgan Stanley's balance sheet this year, in part to ease investor concerns about the bank's exposure to the European sovereign debt crisis.

In April, Gorman struck a deal with Mitsubishi UFJ Financial Group, a major investor and partner, to convert 7.8 million Morgan Stanley preferred shares into 385.5 million shares of common stock. That move lifted Morgan Stanley's capital ratios.

Gorman has also overseen the dismantling of risky trading operations to comply with a new financial reform rule, wound down other risky assets and implemented higher pricing for over-the-counter derivatives products to reflect higher risk and cost. He has also adjusted Morgan Stanley's funding model to reduce its exposure to riskier, short-term lending.

Still, its shares are down 43 percent so far this year, compared with a 32 percent decline for the NYSE Arca Securities Broker/Dealer Index.

Walter Todd, a portfolio manager at Greenwood Capital, said Gorman's efforts have been noticed but that concerns remain over Europe and the business model of large investment banks. Todd exited his firm's Morgan Stanley position last week to reduce volatility in the portfolio.

"I think it's nice to get this behind them and check it off as something not to worry about anymore , but I wouldn't go out and buy the name because of this agreement," he said.

For MBIA's part, the deal removes a big hurdle standing in the way of its restructuring, at a lower cost than if Morgan Stanley had pursued its claims in full.

Morgan Stanley had $2.7 billion worth of net exposure to MBIA's derivative contracts as of September 30, according to a quarterly regulatory filing. The bank is writing off $1.8 billion worth of the underlying debt, which will lead to the $1.2 billion charge after taxes.

But Manal Mehta, a founding partner of the hedge fund Branch Hill Capital, which owns MBIA shares, estimates that the total notional amount of the underlying securities was more than $10 billion -- meaning that MBIA's $1.1 billion settlement may represent just 10 percent of the potential cost.

"This is a fantastic deal for MBIA," said Mehta.

A Morgan Stanley spokesman declined to disclose the notional amount of underlying securities. Mehta extrapolated his estimate from disclosures by Bank of America.

(Reporting by Lauren Tara LaCapra in New York,; additional reporting by Karen Freifeld in New York; Editing by Lisa VonAhn, Dave Zimmerman, Dan Wilchins and Steve Orlofsky)

(This story was corrected in paragraph eight to say MBIA regulators allowed the company to split, rather than were forced to split the company)

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Appeal sped up over BofA $8.5 billion MBS accord (Reuters)

(Reuters) – A U.S. appeals court on Wednesday sped up the review of a ruling that moved consideration of Bank of America Corp's (BAC.N) $8.5 billion settlement over mortgage debt to federal court from a New York state court.

The decision by the 2nd U.S. Circuit Court of Appeals in New York could help Bank of America, which intended the accord to address much of its remaining legal liability from its 2008 purchase of the mortgage lender Countrywide Financial Corp.

Bank of New York Mellon Corp (BK.N), which as trustee negotiated the accord, and investors such as BlackRock Inc (BLK.N) and MetLife Inc (MET.N) are hoping to reverse an October 19 ruling by U.S. District Judge William Pauley in Manhattan moving the case to his court from a New York state court.

Pauley said he took the case because it implicated "paramount federal interests" such as the integrity of nationally chartered banks and the vitality of financial markets.

The settlement applied to 530 mortgage securitization trusts with $174 billion of unpaid principal. It was intended to address claims by investors who said the seemingly safe securities that they bought proved toxic because they were backed by risky home loans that were underwritten poorly.

Bank of New York Mellon had negotiated the accord with 22 institutional investors including BlackRock and MetLife.

But objections were raised by many investors that were not part of the talks but would be bound by the outcome, including a group called Walnut Place.

Some of these investors said the $8.5 billion payout was too low. Moving the case to federal court could potentially make it easier to back out, or negotiate higher payouts.

In court papers, Bank of New York Mellon countered that delaying the appeal would "disrupt a settlement that is of enormous importance to investors."

Fallout from the Countrywide purchase has weighed on the share price of Charlotte, North Carolina-based Bank of America, which on Tuesday fell to its lowest level since March 2009.

Shares of the second-largest U.S. bank rose 37 cents, or 7.3 percent, on Wednesday to close at $5.44.

The 2nd Circuit did not say when it would consider the appeals. Bank of America was not part of either motion seeking expedited appeal.

The cases are Bank of New York Mellon v. Walnut Place LLC et al, 2nd U.S. Circuit Court of Appeals, Nos. 11-4554 and 11-4571.

(Reporting by Jonathan Stempel in New York)

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Freddie Mac reports loss, seeks $6.0 billion (Reuters)

WASHINGTON (Reuters) – Mortgage finance giant Freddie Mac (FMCC.OB) said on Thursday it will seek an additional $6 billion from U.S. taxpayers following its worst quarterly loss this year.

The government-owned company reported a comprehensive loss in the third quarter of $4.4 billion, it said in a filing with the U.S. Securities and Exchange Commission. That compared with a $2.5 billion loss for the same three-month period in the previous year.

Despite income of $4.6 billion, the company registered a net worth deficit of $6.0 billion, which was partly attributed to a $1.6 billion quarterly dividend payment to the Treasury.

"The weak labor market and fragile economy continue to weigh heavily on the single-family market, causing many potential buyers to sit on the sidelines or opt to rent despite high affordability and record low mortgage rates," Chief Executive Officer Charles E. Haldeman said in a statement.

Freddie Mac has now drawn $72.2 billion from the government since it was taken over at the height of the financial crisis in September 2008. The government seized both Freddie Mac and larger rival company Fannie Mae (FNMA.OB) as mortgage losses at the two firms piled up and threatened them with insolvency.

Freddie Mac has now returned $14.9 billion of the money it has drawn from Treasury in the form of dividend payments.

"Looking ahead, we expect the tepid recovery to continue to put downward pressure on house prices into early next year," Haldeman said.

Earnings reports earlier in the year had shown Freddie Mac setting aside less money to cover potential credit losses. This quarter, Freddie set aside a $3.6 billion provision for credit losses from single-family home loans.

Aside from continued weakness in housing, Freddie's performance in the third quarter was impacted by losses on derivatives that are used to hedge exposure to interest rates movements. Freddie Mac posted $4.8 billion worth of derivatives losses for the quarter, compared with $1.1 billion from the same period a year earlier.

The regulator for Freddie Mac and Fannie Mae last week predicted the two firms' cumulative net costs to U.S. taxpayers will be $121 billion to $193 billion through 2014, with future dividend payments taken into account. That's down from a year-earlier forecast of cumulative capital needs likely falling between $221 billion and $363 billion through 2013.

Both Fannie Mae and Freddie Mac have drawn about $175 billion that the government since they were seized in 2008 and have returned about $30 billion. So far, the two firms have cost taxpayers about $145 billion.

(Reporting by Margaret Chadbourn; Editing by Chizu Nomiyama and Jan Paschal)

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Fannie Mae taps $7.8 billion from Treasury, loss widens (Reuters)

WASHINGTON (Reuters) – Fannie Mae, the biggest source of money for U.S. home loans, on Tuesday said it needed a further $7.8 billion in federal aid to stay afloat as a shaky housing market widened its third-quarter loss to $5.1 billion.

The government-controlled firm also attributed the deeper cash drain to losses on derivatives used to hedge its exposure to interest-rate swings and on expenses related to home loans made prior to the 2008 financial collapse. In the year-earlier quarter it had a loss of a $1.3 billion.

Fannie Mae has now drawn $112.6 billion in bailout funds from the Treasury Department since being seized by the government in 2008 as mortgage losses mounted, and it has returned $17.2 billion to taxpayers in the form of dividends.

"There is certainly a lot of pre-2009 loans that we need to work through and that is certainly driving the credit losses you saw in this quarter and over the last several years," Fannie Mae Chief Financial Officer Susan McFarland told Reuters.

She said the company was "working to reduce losses" on those legacy loans and "limit taxpayer exposure."

The mortgage finance company and its smaller rival Freddie Mac were taken over during the financial crisis as losses on subprime mortgages threatened insolvency.

Given the crucial role the two play in U.S. housing finance, owning or guaranteeing about half of all mortgages, the government has pledged unlimited funds to keep the firms afloat through the end of 2012. Combined, they have cost taxpayers around $169 billion.

The plan to put them into a government conservatorship was meant to be temporary, although it is likely to be years before a long-term replacement structure takes shape. Both the Obama administration and Congress want to eventually wind them down.

Their regulator estimates that the bailout could reach about $193 billion through 2014, with dividend payments taken into account.

Fannie Mae said credit losses, which include expenses related to the foreclosed properties it holds on its books as well as on its derivatives, increased in the third quarter to $4.5 billion from $3.9 billion in the second quarter.

Freddie Mac, the second-largest source of U.S. mortgage finance, said last week it lost $4.4 billion in the third quarter and needed to borrow an extra $6 billion from the federal government.

Fannie Mae has now reported losses in 16 of the last 17 quarters. It reported a profit of $73 million in the fourth quarter of last year, but that was largely attributed to a one-time payment from Bank of America.

Fannie Mae and Freddie Mac were created by Congress to encourage homeownership. They buy mortgages from lenders and repackage them as securities for investors, with a guarantee, to ensure a steady source of home loan funds.

The two firms, along with the Federal Housing Administration, now back about nine out of 10 new home loans.

(Reporting by Margaret Chadbourn; editing by Bob Burgdorfer)

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Germany finds 55 billion euro after accountancy error (Reuters)

BERLIN (Reuters) – Germany is 55.5 billion euros ($78.7 billion) richer than it thought due to an accountancy error at the bad bank of nationalized mortgage lender Hypo Real Estate (HRE), the finance ministry said.

Europe's largest economy now expects its ratio of debt to gross domestic product to be 81.1 percent for 2011, 2.6 percentage points less than previously forecast, it said.

The HRE-linked bad bank FMS Wertmanagement (FMSWA.UL) was set up after HRE was nationalized in 2009, so that HRE could transfer the worst non-performing assets to an off-balance sheet bank guaranteed by the German state.

"Apparently it was due to sums incorrectly entered twice," said a ministry spokesman on Friday, adding the reason for the error still needed to be clarified.

The government nonetheless welcomed the news which pointed to a further reduction of Germany's debt mountain, which remains above the European Union's Maastricht requirement for 60 percent of GDP.

However, the opposition Social Democrats (SPD) expressed astonishment at the extent of the accountancy error, for which they see the government as responsible.

"This is not a sum that the Swabian housewife hides in a biscuit tin and forgets," said SPD parliamentary leader Thomas Oppermann. "To overlook such a sum is completely irresponsible."

Swabians, from the south-west of Germany, are renowned for their savings skills.

Of the total sum uncovered at FMS, 24.5 billion euros is for 2010 and 31 billion euros is for 2011.

"HRE's bad bank is a state-owned bank for which (Finance Minister) Wolfgang Schaeuble is responsible," Oppermann added. "He is responsible for the bank being managed and supervised in an orderly way, and this clearly was not the case."

FMS Wertmanagement was created when toxic loans and securities with a face value of 173 billion euros were transferred from HRE in October last year, creating Germany's largest bad bank. ($1 = 0.705 Euros)

(Reporting by Sarah Marsh and Thomas Seythal)

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Freddie Mac reports loss, seeks $6.0 billion (Reuters)

WASHINGTON (Reuters) – Mortgage finance giant Freddie Mac (FMCC.OB) said on Thursday it will seek an additional $6 billion from U.S. taxpayers following its worst quarterly loss this year.

The government-owned company reported a comprehensive loss in the third quarter of $4.4 billion, it said in a filing with the U.S. Securities and Exchange Commission. That compared with a $2.5 billion loss for the same three-month period in the previous year.

Despite income of $4.6 billion, the company registered a net worth deficit of $6.0 billion, which was partly attributed to a $1.6 billion quarterly dividend payment to the Treasury.

"The weak labor market and fragile economy continue to weigh heavily on the single-family market, causing many potential buyers to sit on the sidelines or opt to rent despite high affordability and record low mortgage rates," Chief Executive Officer Charles E. Haldeman said in a statement.

Freddie Mac has now drawn $72.2 billion from the government since it was taken over at the height of the financial crisis in September 2008. The government seized both Freddie Mac and larger rival company Fannie Mae (FNMA.OB) as mortgage losses at the two firms piled up and threatened them with insolvency.

Freddie Mac has now returned $14.9 billion of the money it has drawn from Treasury in the form of dividend payments.

"Looking ahead, we expect the tepid recovery to continue to put downward pressure on house prices into early next year," Haldeman said.

Earnings reports earlier in the year had shown Freddie Mac setting aside less money to cover potential credit losses. This quarter, Freddie set aside a $3.6 billion provision for credit losses from single-family home loans.

Aside from continued weakness in housing, Freddie's performance in the third quarter was impacted by losses on derivatives that are used to hedge exposure to interest rates movements. Freddie Mac posted $4.8 billion worth of derivatives losses for the quarter, compared with $1.1 billion from the same period a year earlier.

The regulator for Freddie Mac and Fannie Mae last week predicted the two firms' cumulative net costs to U.S. taxpayers will be $121 billion to $193 billion through 2014, with future dividend payments taken into account. That's down from a year-earlier forecast of cumulative capital needs likely falling between $221 billion and $363 billion through 2013.

Both Fannie Mae and Freddie Mac have drawn about $175 billion that the government since they were seized in 2008 and have returned about $30 billion. So far, the two firms have cost taxpayers about $145 billion.

(Reporting by Margaret Chadbourn; Editing by Chizu Nomiyama and Jan Paschal)

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AIG loses bid to move $10 billion fraud case vs BofA (Reuters)

(Reuters) – A federal judge has rejected American International Group Inc's request to move its $10 billion mortgage fraud lawsuit against Bank of America Corp back to a New York state court, where it was originally filed, from federal court.

U.S. District Judge Barbara Jones accepted Bank of America's argument that some of the home loans underlying the 349 residential mortgage-backed securities that AIG said it bought entitled a federal court to assert jurisdiction.

(Reporting by Jonathan Stempel in New York, editing by Gerald E. McCormick)

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Consumer credit falls $9.5 billion in August (Reuters)

WASHINGTON (Reuters) – U.S. consumer credit posted its largest decline in more than a year in August, according to a Federal Reserve report on Friday that suggested consumers were reluctant to hold more debt amid a shaky economic recovery.

Consumer credit fell a surprising $9.50 billion in August after rising $11.92 billion in July, the report said. That was well below economists' expectations of a $7.75 billion increase.

"Consumers are extraordinarily sensitive to economic conditions and as things started to look a bit more sour, they stopped using their credit card," said Steve Blitz, a senior economist with ITG Investment Research in New York.

The U.S. credit rating downgrade and Europe's debt problems triggered wild swings in global equity markets in August. That combined with higher unemployment to hold consumers back, economists suggested.

Revolving credit, which mostly measures credit card use, dropped $2.27 billion in August after falling $3.56 billion in July.

Non-revolving credit, which includes mostly auto loans, fell $7.23 billion, the largest decline since August 2008, after rising $15.48 billion in July.

(Reporting by Rachelle Younglai, editing by Andrea Ricci and Dan Grebler)

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Consumer borrowing dropped $9.5 billion in August (AP)

By MARTIN CRUTSINGER, AP Economics Writer Martin Crutsinger, Ap Economics Writer – Fri Oct 7, 5:24 pm ET

WASHINGTON – Consumers slashed their borrowing in August by the most in 16 months. The drop suggests many worried about taking on new debt while the economy slumped and the stock market fluctuated wildly.

Fewer people used their credit cards. And a measure of demand for auto and student loans fell.

Total borrowing dropped $9.5 billion in August, the Federal Reserve said Friday. In July, borrowing increase $11.9 billion.

Americans have been struggling all year with high unemployment, meager pay raises and pricier goods and gas. That has depressed consumer spending, which fuels 70 percent of economic growth.

In August, consumer confidence tumbled to a two-year low, and retail sales were flat. The weak economy, along with gridlock in Washington and heightened concerns over Europe's debt crisis, rattled financial markets.

The August drop in borrowing was the largest since April 2010. Prior to that, consumers had increased their borrowing for 10 straight months.

Borrowing for auto and student loans plunged $7.2 billion in August. A category that includes credit cards fell $2.3 billion.

The overall decline lowered total borrowing to a seasonally adjusted $2.44 trillion. Borrowing is just 2.1 percent higher than the recent low hit in September of last year.

The August decline came as a surprise to economists who had been expecting a solid increase for the month. Some analysts said they believed the figure overstated the weakness in borrowing and reflected trouble the government has with seasonally adjusting the borrowing figures.

Troy Davig, an economist at Barclays Capital, said he expected borrowing to continue rising at a modest pace in coming months, reflecting his expectation that consumers will keep borrowing cautiously.

"We are looking for consumer borrowing to keep rising slowly at a pace that will not get ahead of income growth," Davig said.

Households began borrowing less and saving more when the country fell into recession and unemployment surged.

While economists believe borrowing will gradually increase in coming months, they don't expect consumers to load up on debt the way they did during the housing boom. Americans felt wealthier then and were more willing to take on added debt because of the soaring value of their homes.

The Federal Reserve's borrowing report covers auto loans, student loans and credit cards. It excludes mortgages, home equity loans and other loans tied to real estate.

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Deloitte sued for $7.6 billion, accused of missing fraud (Reuters)

(Reuters) – Deloitte Touche Tohmatsu Ltd (DLTE.UL), the world's largest accounting and consulting firm, was accused on Monday of failing to detect fraud during its audits of one of the biggest private mortgage firms to collapse during the U.S. housing crash.

A trust overseeing the bankruptcy of Taylor, Bean & Whitaker Mortgage Corp, or TBW, and one of the company's subsidiaries filed complaints in a Miami Circuit Court claiming a combined $7.6 billion in losses.

Deloitte "certified TBW as a solvent, viable company with accurate financial statements every year from 2001 to 2008," one of the complaints said.

"Despite Deloitte's credentials and expertise as one of the 'Big 4' accounting firms, those statements -- and the rosy picture they depicted of TBW -- were completely false," it said.

Deloitte spokesman Jonathan Gandal said the "claims are utterly without merit."

It was the latest lawsuit to hit one of the major accounting firms over their role in the credit crisis.

Pricewaterhouse Coopers, KPMG and Ernst & Young are also facing accusations about their auditing standards by investors who collectively seek to recoup billions of dollars lost in the financial meltdown.

Lee Farkas, the former chairman of Taylor, Bean and Whitaker, was sentenced to 30 years in prison in April for masterminding what U.S. officials described as one of the biggest bank frauds ever.

U.S. Justice Department officials said Farkas ran a $2.9 billion fraud scheme that led to TBW's downfall and the collapse of one of the largest U.S. regional banks, Colonial Bank.

The complaint filed by Neil F. Luria, a plan trustee of Taylor, Bean & Whitaker Trust, claims losses of approximately $6 billion. A second complaint by Ocala Funding, a wholly owned TBW subsidiary which served as a lending facility, claims losses of $1.6 billion.

Farkas was accused of running a wide-ranging scheme to cover up large losses at Taylor, Bean, which was based in Ocala, Florida, by moving funds between accounts at Colonial Bank and also by selling mortgage loans that either did not exist, were worthless or had already been sold.

"Deloitte missed this fraud because it simply accepted management's conflicting, incomplete and often last-minute explanations of highly-questionable transactions, even though those explanations made no sense and were flatly contradicted by the documents in Deloitte's possession," the complaint by Ocala Funding said.

"Ocala relied on Deloitte to detect material misstatements in the financial statements due to error or fraud," the complaint said.

Gandal said the plaintiffs in the cases were "companies through which convicted felon Lee Farkas and his co-conspirators committed their crimes."

"The bizarre notion that his engines of theft are entitled to complain of injury from their own crimes and to sue the outside auditors they lied to defies common sense, not to mention the law," he said in a statement.

Several other Taylor, Bean and Colonial Bank employees who pleaded guilty for their roles in the fraud were also sentenced earlier this year.

(Editing by Bernard Orr)

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Deloitte sued for $7.6 billion, accused of missing fraud (Reuters)

(Reuters) – Deloitte Touche Tohmatsu Ltd (DLTE.UL), the world's largest accounting and consulting firm, was accused on Monday of failing to detect fraud during its audits of one of the biggest private mortgage firms to collapse during the U.S. housing crash.

A trust overseeing the bankruptcy of Taylor, Bean & Whitaker Mortgage Corp, or TBW, and one of the company's subsidiaries filed complaints in a Miami Circuit Court claiming a combined $7.6 billion in losses.

Deloitte "certified TBW as a solvent, viable company with accurate financial statements every year from 2001 to 2008," one of the complaints said.

"Despite Deloitte's credentials and expertise as one of the 'Big 4' accounting firms, those statements -- and the rosy picture they depicted of TBW -- were completely false," it said.

Deloitte spokesman Jonathan Gandal said the "claims are utterly without merit."

It was the latest lawsuit to hit one of the major accounting firms over their role in the credit crisis.

Pricewaterhouse Coopers, KPMG and Ernst & Young are also facing accusations about their auditing standards by investors who collectively seek to recoup billions of dollars lost in the financial meltdown.

Lee Farkas, the former chairman of Taylor, Bean and Whitaker, was sentenced to 30 years in prison in April for masterminding what U.S. officials described as one of the biggest bank frauds ever.

U.S. Justice Department officials said Farkas ran a $2.9 billion fraud scheme that led to TBW's downfall and the collapse of one of the largest U.S. regional banks, Colonial Bank.

The complaint filed by Neil F. Luria, a plan trustee of Taylor, Bean & Whitaker Trust, claims losses of approximately $6 billion. A second complaint by Ocala Funding, a wholly owned TBW subsidiary which served as a lending facility, claims losses of $1.6 billion.

Farkas was accused of running a wide-ranging scheme to cover up large losses at Taylor, Bean, which was based in Ocala, Florida, by moving funds between accounts at Colonial Bank and also by selling mortgage loans that either did not exist, were worthless or had already been sold.

"Deloitte missed this fraud because it simply accepted management's conflicting, incomplete and often last-minute explanations of highly-questionable transactions, even though those explanations made no sense and were flatly contradicted by the documents in Deloitte's possession," the complaint by Ocala Funding said.

"Ocala relied on Deloitte to detect material misstatements in the financial statements due to error or fraud," the complaint said.

Gandal said the plaintiffs in the cases were "companies through which convicted felon Lee Farkas and his co-conspirators committed their crimes."

"The bizarre notion that his engines of theft are entitled to complain of injury from their own crimes and to sue the outside auditors they lied to defies common sense, not to mention the law," he said in a statement.

Several other Taylor, Bean and Colonial Bank employees who pleaded guilty for their roles in the fraud were also sentenced earlier this year.

(Editing by Bernard Orr)

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BofA sued by shareholder over $10 billion AIG loss (Reuters)

NEW YORK (Reuters) – A Bank of America Corp (BAC.N) shareholder sued the bank on Friday for what he said was a failure to disclose it potentially owes more than $10 billion to American International Group Inc (AIG.N) in connection with mortgage-backed securities.

The lawsuit, filed in U.S. District Court in Manhattan, seeks class action status on behalf of purchasers of Bank of America stock between February 25 and August 5 this year.

AIG, which was bailed out by the government in the 2008 financial crisis, suffered losses of more than $10 billion from the securities, known as RMBS, between 2005 and 2007. The losses occurred after Bank of America and two companies it bought -- Countrywide Financial Corp and Merrill Lynch -- and subsidiaries sold AIG more than $28 billion in RMBS.

"Throughout the class period, defendants repeatedly informed investors about the claims of other entities for RMBS losses but not about the massive losses suffered by AIG," the lawsuit said.

Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, said he had not seen the lawsuit and declined to comment.

The court document said the shareholder losses occurred on August 8 as Bank of America's stock dropped more than 20 percent to $6.51 per share from $8.17 per share after AIG sued the bank in New York state court seeking to recover the RMBS losses.

"This decrease was a result of the artificial inflation caused by the defendants' misleading statements coming out of the price," Friday's lawsuit said.

In a footnote, the court document adds that the plaintiff, shareholder David Lawrence, "asserts only that BofA should have disclosed AIG's losses and potential claims to investors and takes no position on whether those claims will ultimately be found to have merit."

Lawrence asks the court to declare the lawsuit a class action under anti-fraud provisions of federal securities law and seeks unspecified damages for all members of the class.

The case is David Lawrence et al v Bank of America Corp, U.S. District Court for the Southern District of New York, No. 11-6678.

(Editing by Steve Orlofsky)

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BofA sued over $1.75 billion Countrywide mortgage pool (Reuters)

NEW YORK/CHARLOTTE, North Carolina (Reuters) – Bank of America Corp (BAC.N) was sued by the trustee of a $1.75 billion mortgage pool, which seeks to force the bank to buy back the underlying loans because of alleged misrepresentations in how they were made.

The lawsuit by the banking unit of US Bancorp (USB.N) is the latest of a number of suits seeking to recover investor losses tied to risky mortgage loans issued by Countrywide Financial Corp, which Bank of America bought in 2008.

In a complaint filed in a New York state court in Manhattan, U.S. Bank said Countrywide, which issued the 4,484 loans in the HarborView Mortgage Loan Trust 2005-10, materially breached its obligations by systemically misrepresenting the quality of its underwriting and loan documentation.

Soon after the loans were sold to the trust, they "began to become delinquent and default at a startling rate," the complaint said. Out of a sample of 786 of the loans, 520, or 66 percent, breached one or more representations, it said.

U.S. Bank said it demanded that Bank of America fix the breaches or buy back the loans as it had agreed to do, but that it has refused and offered no reason for this refusal.

The lawsuit demands that the bank repurchase all the loans in the pool, or at least those it knows have problems and are hurting investors in the trust.

Bank of America spokesman Lawrence Grayson said the bank is still reviewing the complaint, but the bank does not believe U.S. Bank has the right to demand repurchases under the mortgage pool agreements, or can demand repurchase for loans that are not delinquent or have been paid off.

The Charlotte, North Carolina-based bank paid $2.5 billion to buy Countrywide, but writedowns and legal costs have pushed the estimated cost of that purchase to more than $30 billion.

Last fall, Chief Executive Brian Moynihan said the bank would fight repurchase claims by investors, calling the process "hand-to-hand combat."

In 2011, however, he has agreed to large settlements with mortgage financiers Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB), as well as billionaire Wilbur Ross' bond insurer Assured Guaranty Ltd (AGO.N). Then in June, he agreed to pay $8.5 billion to settle a wide range of Countrywide claims.

The $8.5 billion pact requires court approval but has drawn objections from several dozen investors, as well as the Federal Deposit Insurance Corp and the New York and Delaware attorneys general. Bank of America also faces a $10 billion lawsuit by bailed-out insurer American International Group Inc (AIG.N).

Bank of America shares closed down 27 cents, or 3.2 percent, to $8.12 on the New York Stock Exchange.

The case is U.S. Bank NA v. Countrywide Home Loans Inc et al, New York State Supreme Court, New York County, No. 652388/2011.

(Reporting by Jonathan Stempel and Joe Rauch; Editing by Derek Caney, Tim Dobbyn and Carol Bishopric)

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BofA $8.5 billion settlement may go to federal court (Reuters)

NEW YORK (Reuters) – Investors objecting to Bank of America Corp's (BAC.N) $8.5 billion settlement of claims over losses on mortgage-backed securities are seeking to send their dispute to federal court, potentially delaying a resolution of one of the beleaguered bank's largest legal liabilities.

According to a Friday court filing, 11 entities sharing the name Walnut Place want to move the case to the U.S. District Court in Manhattan from the state supreme court in that borough.

They said the case qualifies as a "mass action" because of its size and complexity, making federal court jurisdiction appropriate. The matter has been in state court since June 29.

The settlement was intended to resolve much of Bank of America's remaining legal liability tied to its disastrous 2008 purchase of mortgage lender Countrywide Financial Corp.

Bank of New York Mellon Corp (BK.N), the trustee handling 530 Countrywide mortgage pools with $174 billion of unpaid principal balances, negotiated the settlement with 22 institutional investors, including the Federal Reserve Bank of New York, BlackRock Inc (BLK.N) and Allianz SE's (ALVG.DE) Pimco.

Investors unhappy with the payout or disclosures had until August 30 to intervene in the case, ahead of a November 17 court hearing. Friday's filing may upset that timetable.

Bank of New York Mellon will seek to move the case back to state court and believes Walnut Place's effort "is unsupported by the law and will only serve to delay the resolution of the proceeding," bank spokesman Kevin Heine said.

Bank of America spokesman Lawrence Grayson called the Walnut Place filing "tactical maneuvering."

David Grais and Owen Cyrulnik, lawyers for Walnut Place, did not respond to emailed requests for comment.

BUFFETT INVESTS

Worries about how much Bank of America will ultimately have to pay angry mortgage securities investors, including in a $10 billion lawsuit by the insurer American International Group Inc (AIG.N), had driven down the Charlotte, North Carolina-based bank's share price to a nearly two and a half year low.

On Thursday, however, the bank won a vote of confidence in the form of a $5 billion investment from Warren Buffett's Berkshire Hathaway Inc (BRKa.N) (BRKb.N).

Other investors challenging the $8.5 billion settlement include pension funds and insurers, and six Federal Home Loan Banks, which offer financing for mortgage and business loans.

New York Attorney General Eric Schneiderman on August 4 announced his own opposition, suggesting the payout is too low and that Bank of New York Mellon is conflicted and could receive financial benefits from the accord.

A Schneiderman spokeswoman on Friday declined to comment.

The federal case is assigned to U.S. District Judge William Pauley. He is also handling an investor lawsuit that accuses Bank of America of "dollar rolling" -- concealing risk by transferring mortgage debt to another entity and buying it back after issuing quarterly statements.

In afternoon trading, Bank of America shares were up 5 cents at $7.70, far below their 52-week high of $15.31 set on January 14.

The state case is In re: The Bank of New York Mellon, New York State Supreme Court, New York County, No. 651786/2011. The federal case is The Bank of New York Mellon et al v. Walnut Place LLC et al, U.S. District Court, Southern District of New York, No. 11-05988.

(Reporting by Jonathan Stempel and Alison Frankel; Editing by Derek Caney, Phil Berlowitz and John Wallace)

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FDIC objects to Bank of America $8.5 billion mortgage accord (Reuters)

NEW YORK (Reuters) – The FDIC and more than three dozen other investors on Monday lodged objections to Bank of America Corp's $8.5 billion settlement of claims over losses on mortgage-backed securities, joining a growing list of investors and regulators that are challenging the accord.

In its filing with the U.S. District Court in Manhattan, the FDIC said it is "the receiver of numerous banks and owner of many certificates" issued by many of the 530 mortgage pools of the former Countrywide Financial Corp that the settlement covers.

The FDIC, whose full name is the Federal Deposit Insurance Corp, said it is intervening because it does not have enough information to evaluate the settlement.

Other investors that objected on Monday included a variety of banks, insurers and investment funds. Among them are Jeffrey Gundlach's money management firm Doubleline Capital LP, and the banking unit of Wayne, New Jersey's Valley National Bancorp.

Bank of New York Mellon Corp, the trustee handling the 530 trusts with $174 billion of unpaid principal balances, had negotiated the settlement with 22 institutional investors including the Federal Reserve Bank of New York, BlackRock Inc and Allianz SE's Pimco.

The June 29 accord was intended to resolve much of Bank of America's remaining legal liability tied to its 2008 purchase of Countrywide, once the nation's largest mortgage lender.

But dozens of investors who did not negotiate but would be bound by the accord have said the payout is too low, or that they lack enough information to know whether it is fair. Two state attorneys general, New York's Eric Schneiderman and Delaware's Beau Biden, also have expressed objections.

A New York state judge is scheduled to consider whether to approve the settlement on November 17, but some investors want the case handled in federal court.

Bank of America spokesman Lawrence Grayson said that bank believes the trustee acted reasonably, and that there are "compelling reasons" for the settlement to be approved. Bank of New York Mellon spokesman Kevin Heine did not immediately respond to an email request for comment.

The state case is In re: The Bank of New York Mellon, New York State Supreme Court, New York County, No. 651786/2011. The federal case is The Bank of New York Mellon et al v. Walnut Place LLC et al, U.S. District Court, Southern District of New York, No. 11-05988.

(Reporting by Jonathan Stempel; editing by Carol Bishopric, Phil Berlowitz)

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