Wells Fargo & Co. will pay $75 million to settle a class-action lawsuit by stockholders who claimed Wachovia misrepresented the quality of its mortgages from 2006 to 2008.
The settlement is the latest move by the nation's fourth-largest bank to resolve lawsuits linked to its 2008 purchase of troubled Wachovia. Wells agreed in August to pay $590 million to large bond investors who made similar allegations.
The lead plaintiffs in the class action are various New York City pension funds. The complaint alleges Wachovia executives misled investors about underwriting practices in its $120 billion "Pick-A-Payment" loan portfolio to "artificially support" the bank's stock price. These adjustable-rate mortgages included a minimum payment option that didn't cover all of the interest and principal owed, causing a borrower's balance to increase.
Wachovia inherited the loans when it acquired California-based Golden West Financial Corp in 2006 and continued to make them even as losses began mounting in early 2008, threatening the health of Wachovia and contributing to its sale to Wells Fargo at the peak of the financial crisis. Wells does not make Pick-a-Payment loans.
The settlement amount was accounted for in earlier quarters and will have no financial impact, Wells spokesperson Mary Eshet said. The agreement resolves lawsuits first filed in 2008 and later consolidated in U.S. District Court in New York.
In March, U.S. District Court Judge Richard Sullivan dismissed the suits brought by stockholders, but plaintiffs appealed to the U.S. Court of Appeals for the Second Circuit.
In his order in March, Sullivan said the alleged misrepresentations laid out in the stockholders' complaint amounted to "corporate puffery rather than actionable statements."
A year ago, Wells agreed to pay Citigroup Inc $100 million to settle allegations that it interfered in the New York bank's unsuccessful deal to buy most of Wachovia during the 2008 financial crisis.
