Actionable news
All posts from Actionable news
Actionable news in WFC: WELLS FARGO & CO.,

Wells Fargo Unsettles Mortgage Bond Market by Holding Back Funds

  • Trustee kept $90 million owed to investors in 20 securities
  • Money held to cover legal costs related to financial crisis

Wells Fargo & Co. surprised investors this week by withholding more than $90 million due to buyers of pre-crisis residential mortgage-backed securities.

The bank said it invoked its right as trustee to hold back funds to cover legal costs. The 20 transactions had a principal balance of $540 million and are among more than 2,000 deals involved in a lawsuit brought by bondholders including BlackRock Inc. and Pacific Investment Management Co. in 2014 to recover losses from the financial crisis.

It’s only the second time that proceeds from bonds involved in that litigation have been withheld from investors. Wells Fargo’s move caused losses for some bondholders and sent others scrambling to assess risks for similar deals in a market still recovering from the bursting of the housing bubble in 2008.

“I expect the market to somewhat freeze until there is more clarity on the bonds with that clause or similar,” said Guillermo Roditi, a portfolio manager at New River Investments in Los Angeles. “I expect there to be a bit of chaos.”

Clean-up Call