California Court Reinstates Pension Suit Against Countrywide

An appeals court has overturned the dismissal of a class-action lawsuit brought by investors against Countrywide Financial Corp. over risky mortgage-backed securities bought between 2005 and 2007.

(May 23, 2011) — A California appellate court has reinstated a pension fund suit against Countrywide Financial.

The lawsuit against Countrywide had been filed by several pension funds — including the Vermont Pension Investment Committee, the Washington State Plumbing & Pipefitting Pension Trust and the $10.6 billion Maine State Retirement System — which accused the firm of misleading investors into buying risky mortgage-backed securities between 2005 and 2007.

The financial firm had been the target of lawsuits by pensions who owned shares of Countrywide.

In late February, a federal judge in Los Angeles approved a deal for Bank of America, which took control of Countrywide during the financial crisis, to pay hundreds of millions of dollars to 33 investors, including pension funds, that filed a class action lawsuit against it for misleading investors about Countrywide’s deteriorating financial condition during the height of the financial crisis. Bank of America, the biggest US bank by assets, said it would pay $600 million to the New York State Common Retirement Fund and New York City pension funds that sued Countrywide. Despite the settlement, some institutional investors involved in the suit have rejected the court settlement and are trying to settle with Bank of America on their own terms, The Los Angeles Times reported. Those that pulled out of the agreement include BlackRock, the California Public Employees Retirement System, T. Rowe Price Group, Nuveen Investments, and the Maryland State Retirement and Pension System.

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While Countrywide denied the charges, the firm settled the case as opposed to spending time and resources to defend it. “We are pleased that the judge approved the settlement as fair and reasonable,” Bank of America said in a statement.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

Hymans Robertson Predicts Record UK Pension Derisking in Q2

With $7.2 billion (£4.5 billion) of risk transfer deals completed over last year, the second quarter of 2011 looks to be a record quarter for the number of buyin and buyout deals completed in the UK, according to consultancy Hymans Robertson.

(May 23, 2011) — Corporate pension funds in the UK plan to offload about $32 billion (£20 billion) in defined benefit liabilities over the next 18 months, pension consultancy Hymans Robertson has shown.

According to the consultant firm, pensions will transfer their risk to banks and insurers, leading to a record number of deals to complete buyouts, buyins, or longevity swaps. James Mullins at Hymans stated in a release that by the end of 2012, one in four FTSE 100 companies would have completed either a buyout or a buyin.

“Our analysis illustrates that it won’t be long before £50 billion of pension scheme risk has been transferred to insurance companies and banks,” Mullins said. “2010 was the third successive year during which £8 billion of pension scheme risks were transferred via buy-ins, buy-outs and longevity swap deals. 2011 is likely to see a substantial increase above these levels.”

He added: “Banks and insurers continue to offer new flexibility to make risk transfers accessible and more affordable to all pension schemes. It is crucial that companies and trustees are aware of this flexibility and innovation to ensure that they do not miss excellent opportunities to reduce risk. In addition, schemes are increasingly keen to manage away as much risk as they can.”

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Hymans Robertson’s research described the environment of pensions offloading liabilities as a snowball effect. “The more schemes that tackle risk, the more pressure there is on others to follow suit,” Mullins stated. “The raft of final salary closures over the last two years, and the impending restrictions on tax relief for high earners’ pension contributions, are raising serious questions for companies over the merits of continuing to run significant risk within their DB pension schemes.”

A March report by Hymans Robertson provided further evidence that UK pension buyouts are becoming more and more prevalent.

“An increase in mergers and acquisitions activity is driving this,” Mullins told the Financial Times. “Any potential purchaser will welcome a company that has already done a deal to transfer risk to an insurer. There is less to worry about,” he said, noting that concerns over longevity risk coupled with a greater number of closures and part-closures of defined benefit pension schemes have fueled the trend.

A recent example illustrating the growing popularity of risk transfer deals is the Pension Insurance Corporation’s (PIC) decision in February to reinsure $799 million of longevity risk to better manage risk and more effectively compete for new business.

Similarly, in January, Swiss Re, the giant European-based reinsurer, decided to transfer $50 million in longevity risk. The investors in the Swiss Re deal were largely pension funds and other insurers.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

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