Zacks_Analysts' Blog : Allstate Sues Credit Suisse on MBS - Analyst Blog

Bloomberg reported that Allstate Corp. (ALL">ALL) has filed a federal complaint against Credit Suisse AG (CS">CS) alleging that the latter had sold more than $231 million of toxic investments in lieu of safe investments to Allstate between 2005 and 2008, which later encountered a drastic price decline.

Accordingly, Allstate now seeks justice and a penalty to recover its losses from the leading investment banker. Allstate also seeks compensation for the litigation costs and losses incurred on account of false information provided by Credit Suisse on the investment quality of the securities.

Primarily, Allstate’s allegations hover around issues such as misrepresentation of facts regarding the underwriting details, owner occupancy data and loan-to-value ratios. Allstate believes that Credit Suisse was quite aware of the investment quality being extensively exposed to subprime and other risky mortgage-backed securities (MBS).

On the other hand, Credit Suisse is not the only banker whom Allstate has charged for investment fraud. Tuesday, Allstate also charged Bank of America Corp.’s (BAC) (BofA) Merrill Lynch of consciously selling residential MBS worth $167 million.

In December 2010, Allstate had also charged Countrywide Financial, which was acquired by BofA in July 2008, and 17 other defendants, alleging that the defendants have sold $700 million of toxic investments between March 2005 and June 2007.

Last week, Allstate charged JPMorgan Chase & Co. (JPM) on selling toxic investments worth $757 million by concealing and misrepresenting crucial information.

Further, Allstate has also lodged complaints on similar grounds against Citigroup Inc. (C) for more than $200 million and Deutsche Bank AG (DB) worth $185 million.

Although the lawsuits remain unsettled and are expected to take a long time, we believe such mortgage pullback issues need to be attended extensively in order to avoid another downturn in the market cycle.