Goldman Sachs Faces Dutch Pension Fund Suit Over Risky Mortgages

Dutch pension fund ABP is suing US investment bank Goldman Sachs for knowingly selling the scheme junk mortgages and providing misleading information.

(January 30, 2012) — Banking giant Goldman Sachs has been sued by Dutch pension fund ABP over residential mortgage-backed securities.

ABP has accused the bank of relaying misleading information in regards to the creditworthiness of its bonds, which ended up being much riskier than the bank had suggested, Reuters initially reported. As a result, the Dutch pension suffered major losses.

The case is Stichting Pensioenfonds ABP v. The Goldman Sachs Group, 650264/2012, New York state Supreme Court.

ABP has been one of many active players in the institutional investing space going after banks for allegedly misleading them about the quality of mortgage-based securities. In late December, ABP sued JPMorgan over residential mortgage-backed securities the scheme purchased. According to the lawsuit, filed in New York State Supreme Court in Manhattan, the Dutch fund purchased the pools of home loans based on false and misleading statements. The lawsuit noted that the mortgage loans backing the securities were taken out by borrowers “who were much less creditworthy than had been represented.”

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The lawsuits against JP Morgan and Goldman Sachs coincide with calls from the US Department of Justice to create a special unit to investigate abusive lending and packaging of risky mortgages as part of President Obama’s 2012 agenda.

In a statement released Friday, the Department of Justice asserted: “Beginning with its first full meeting…the Working Group will streamline and strengthen current and future efforts to identify, investigate, and prosecute instances of wrongdoing in the packaging, selling, and valuing of residential mortgage-backed securities. I am confident that this new effort will improve our ability to ensure justice for victims; help restore faith in our financial markets and institutions; and allow us to answer the call that President Obama issued earlier this week, in his State of the Union address.”

The unit will police major financial crimes, and will focus on both the origination and securitization (or packaging) of mortgage loans, according to Justice Department officials. The working group will be co-chaired by New York Attorney General Eric Schneiderman along with senior officials at the Department of Justice and Securities and Exchange Commission.

(January 30, 2012) — Global pension assets hit a record high at the end of last year, but burgeoning liabilities meant funding ratios were in a worse state than 12 months earlier, a survey has shown.

Assets held in defined benefit and contribution schemes at the end of 2011 hit $27.5 trillion, according to investment consulting firm Towers Watson.

This figure showed a 3.9% increase in the asset level over the 12 months, but this was much lower than the 10.9% rise over 2010. All figures were stated in US dollar terms.

However, lower interest rates and changes to other accounting measures around the world’s major economies meant liabilities also hit record highs compared to a benchmark date at the end of 1998, Towers Watson said.

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Using this measure, liabilities were 107.3% of their 1998 totals, whereas assets had only grown 54% from this point.

This shift meant global pension fund balance sheets worsened in 2011, losing 4.3% in the asset-liability indicator, despite the growth in assets.

Chris Ford, Head of Investment in Europe, Middle East and Africa at Towers Watson, said: “In case investors needed any reminding, the last six months of 2011 have driven home the need to have investment strategies that are flexible and adaptable and which contain a broader view of risk. This approach makes greater allowance for extreme events, which are occurring more frequently, while accommodating the softer elements of risk, such as credit and liquidity.”

Across the 13 countries counted in the survey, which have the largest pension fund assets worldwide, the allocation to fixed-income investments rose, and the percentage held in equities fell over the year, indicating investors were moving away from risky assets.

The largest shift towards bonds was seen in the United Kingdom, where 15 percentage points worth of assets were moved into fixed-income investments since 2006. A seven percentage point shift to alternative assets made up the rest of a 19 percentage point reduction of equity holdings.

Japan and the Netherlands – both relatively risk-averse investing nations – moved the next largest amount of assets into fixed income. They moved 13 and 14 percentage points of assets into bonds and other related securities over the five years to the end of 2011, cutting equity exposure by over 10 percentage points.

Investors in the United States, which holds 80% of pension assets within its borders, withdrew 16 percentage points from equities over the last five years, preferring split these assets between alternatives and fixed-income securities.

Ford said: “The volatility in markets and the heightened risk awareness associated with possible sovereign defaults continues to make asset allocation incredibly challenging as companies and trustees balance such priorities as long-term de-risking, short-term market opportunities, rebalancing or maintaining a strategic asset allocation mix.”

The largest surge in assets came from some developing economies, Towers Watson said. Brazil and South Africa saw pension assets climb by over 16% in 2011. Australia, which offers mainly defined contribution schemes, saw assets rise by 17% over the same period, in US dollar terms.

Over the past decade, however, Brazil has seen the largest asset growth with an upsurge of 14.3%. South Africa and Hong Kong followed slightly behind with 12.5% and 10.3% respectively.