Wells Fargo to pay $75 million to settle Wachovia suit
CHARLOTTE (Reuters) - Wells Fargo & Co plans to pay $75 million to settle a class-action lawsuit brought by stockholders who claimed Wachovia misrepresented the quality of its mortgages from 2006 to 2008.
The settlement is the latest effort by the fourth largest U.S. bank to resolve lawsuits tied to its 2008 purchase of ailing Wachovia. In August, Wells agreed to pay $590 million to large bond investors who made similar allegations.
The settlement amount was accounted for in prior quarters and will have no financial impact, Wells spokeswoman Mary Eshet said on Friday. The bank is pleased to "put this matter behind us," she said.
The agreement resolves lawsuits initially filed in 2008 and later consolidated in U.S. District Court in New York. The lead plaintiffs are various New York City pension funds.
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 a letter filed in U.S. District Court last week, the parties said they had reached an agreement in principle to settle all claims.
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 did not 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 the housing market cratered.
Losses started ballooning in early 2008, undermining 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.
In his order in March, Sullivan said the alleged misrepresentations laid out in the stockholders' complaint amounted to "corporate puffery rather than actionable statements."
The bondholders, however, had stated a "material misrepresentation claim" based on loan-to-value ratios reported in offering documents, he found.
The $75 million settlement with stockholders needs to be returned to U.S. District Court from the appeals court for approval.
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.
(Editing by Derek Caney)
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