New York's Retirement Fund Settles Securities Suit Against National City Corporation

The $146.5 billion New York State Common Retirement Fund (CRF) has announced a proposed $168 million settlement of its securities fraud class-action lawsuit against National City Corporation over investment losses.

(August 9, 2011) — The $146.5 billion New York State Common Retirement Fund (CRF) has settled a security fraud class-action lawsuit for $168 million.

The suit — against National City Corporation — stems from investment losses, as CRF claims the firm misrepresented the quality of its mortgages and home equity loans, minimizing the severity of losses.

“This is a good result for the fund and the more than one million fund members who rely on these investments,” said State Comptroller Thomas DiNapoli, trustee of the fund and lead plaintiff in the class action.

A statement released by DiNapoli states that during the period in question, National City, which held more than $48 billion in residential real estate loans, was one of the largest financial holding companies in the United States. The complaint was filed in the United States District Court for the Northern District of Ohio in 2008.

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In January, DiNapoli’s office also announced the $4.25 million settlement of a securities fraud lawsuit against Merrill Lynch & Co. Based on court documents filed in July in US District Court in New York, the defendants attempted to hide the extent of the company’s involvement in risky subprime mortgage-backed securities, artificially inflating the value of the stock. The result: Major investor losses once the firm’s risky subprime exposure became apparent. The settlement additionally covers two former Merrill executives — company officials E. Stanley O’Neal and Jeffrey N. Edwards.

“The Fund was misled about the extent of Merrill Lynch’s participation in the subprime mortgage fiasco; that is unacceptable,” said DiNapoli in a statement. “I am responsible for protecting the secure retirement of more than one million system members, and I take that duty seriously. I am confident that this settlement makes up for a large part of the Fund’s losses. This sends a message that we will always fight to protect the best interests of our members.”

In 2010, CRF negotiated a $624 million settlement in a class-action securities fraud suit against Countrywide Financial Corporation in 2010.

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

(August 9, 2011) — Pension Protection Fund (PPF) aggregate deficits rose in July as market turmoil pummeled investments.

Aggregate deficits of schemes monitored by the PPF — which operates the safety net for members of pension schemes if these schemes collapse — increased to £67.3 billion ($109 billion) from £8.3 billion at the end of June. The funding ratio for the 6,533 schemes in the PPF 7800 Index dropped from 99.2% to 93.7%.

The fund stated: “The FTSE All-Share Index fell by 2.3% over July and 15-year gilt yields were down 42 basis points. During the month of July there was a 0.26% decrease in assets mainly due to declining UK and global equities, with some offset from higher bond prices. Liabilities also rose, by 5.6%, due primarily to the significant fall in gilt yields.”

Meanwhile, the PPF said there were 4,684 schemes in deficit and 1,849 schemes in surplus at the end of last month, with the deficit greater than the £10.5 billion recorded a year earlier.

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In June, new research conducted in the United Kingdom revealed that the majority of pension schemes in the UK are structurally underhedged. The research showed that 85% of pension schemes have less than 50% inflation-linked assets matching their liabilities. The proportion of matching assets relative to liabilities in these schemes was between 25% and 35%.

Jay Shah, the co-head of business origination for the Pension Insurance Corporation, cautioned, “Pension schemes are continuing to take big risks of inflation eroding away investment returns and funding positions deteriorating.”

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