NEW YORK - (03/20/06) Investors in PHH Corp. filedsuit against the mortgage banking giant and its senior managementFriday claiming the company committed fraud in its financialreporting to shareholders. The purported class action charges thatPHH, credit unions biggest mortgage bank, made false andmisleading financial statements in news releases and in financialfilings with the Securities and Exchange Commission pertaining tolast years spin-off of PHH from Cendant Corp. Theplaintiffs, represented by Milberg Weiss Bershad & Schulman,noted that on March 1, the day PHH disclosed the inaccuratefinancial reports and fired its Chief Financial Officer its shareprice fell 10% in a big market sell-off. After the announcement,Fitch Ratings placed the debt of PHH on ratings watch negative.Since being spun off from Cendant last spring, PHH has acquiredCUNA Mutual Groups $10 billion mortgage portfolio to becomethe largest mortgage bank for credit unions. The company is thenations 11th largest mortgage lender with a portfolio of$160 billion.
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The Cleveland-based bank is projecting steady growth in net interest income even as credit losses remain manageable. But Chairman and CEO Chris Gorman also said that he thinks a recession is likely.
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The first-quarter increase involved commercial real estate loans, including some problematic multifamily loans and an office credit, but none of the criticized loans were to consumers, officials at the Dallas company say. Further CRE deterioration is anticipated.
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The Detroit-based company is exploring ways to make more consumer auto loans without running afoul of stricter capital standards that are expected from the Federal Reserve. Possible approaches include more securitizations and the use of credit risk transfers.
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The House Financial Services Committee also sent to the full House two bipartisan bills, including one that would prevent large banks from opting out of having to recognize Accumulated Other Comprehensive Income in regulatory capital.
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Charge-offs and nonperforming loans rose at the Georgia bank in the first quarter. But it blamed the problem on one large client and said the matter has been resolved.
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Amid healthy first-quarter loan growth and improving credit quality, Discover Financial Services slashed its profits by $800 million to offset remediation costs from a 16-year period when it overcharged certain merchants.
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