Allstate Sues Citi, Deutsche Bank Over Mortgage Securities

By and | February 22, 2011

Allstate Corp. sued Citigroup Inc. and Deutsche Bank AG, accusing the banks of causing losses by hiding the risks on more than $385 million of mortgage securities it bought.

Allstate, the largest publicly traded U.S. home and auto insurer, has filed similar lawsuits against two other lenders, Bank of America Corp. and JPMorgan Chase & Co.

It is so far seeking to recover losses on more than $1.8 billion of securities, including more than $757 million from JPMorgan and more than $700 million from Bank of America and its Countrywide unit.

Allstate is among a growing number of companies, such as the brokerage Charles Schwab Corp., suing lenders they believe misled them about the safety of mortgage debt that ultimately went sour during the housing and credit crises.

In complaints filed with the New York State Supreme Court in Manhattan, Allstate said it bought more than $200 million of mortgage-backed securities from Citigroup and more than $185 million from Deutsche Bank, or from affiliates of the banks.

The Northbrook, Illinois-based insurer said it had been led to believe it was buying “highly rated, safe securities,” mostly with “triple-A” ratings, backed by high-quality loans.

In fact, it said, both defendants knew their loan pools were “toxic,” filled with loans to borrowers who were likely to, and often did, default. This resulted in “significant losses” for Allstate, the complaints said.

Allstate is seeking to undo the securities purchases, which took place between 2004 and 2007, or else recover lost principal and interest, as well as other damages.

Citigroup spokesman Alex Samuelson, Deutsche Bank spokeswoman Michele Allison, and Allstate spokeswoman Maryellen Thielen declined to comment.

Allstate ended 2010 with $79.6 billion of fixed-income investments and $6.68 billion of mortgage loan investments, according to a Feb. 9 regulatory filing.

The Deutsche Bank case is Allstate Insurance Co. et al v. Ace Securities Corp. et al, New York State Supreme Court, New York County, No. 650431/2011. The Citigroup case is Allstate Insurance Co. et al v. CitiMortgage Inc et al in the same court, No. 650432/2011.

(Reporting by Jonathan Stempel and Maria Aspan, editing by Gerald E. McCormick and John Wallace)

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