Dive Brief:
- An insurer sued five of the U.S.'s eight systemically important financial institutions (SIFI) Thursday over $720 million in damages from Puerto Rico bonds that went into default.
- Subsidiaries of JPMorgan Chase, Citigroup, Goldman Sachs, Morgan Stanley and Bank of America are named in a lawsuit insurer MBIA Inc. filed in Superior Court in San Juan. The suit claims the banks "inflicted a financial tragedy" on the island, which filed for bankruptcy in 2017, to restructure $120 billion of debt and pension obligations, according to Reuters.
- The suit follows one filed in May by Puerto Rico's fiscal oversight board, accusing the same banks of aiding and abetting the island’s "clearly insolvent" government to issue debt.
Dive Insight:
The banks underwrote more than $66 billion of bonds issued between 2001 and 2014 by Puerto Rico and its agencies and, in the process, earned hundreds of millions of dollars in fees, according to the suit.
"That debt bankrupted the commonwealth and its agencies while the banks enriched themselves through massive fees," MBIA said.
The insurer said its subsidiary, National Public Finance Guarantee Corp., relied on "materially false or misleading" disclosures in deciding to insure more than $11 billion in debt because the underwriters failed to do their due diligence on the bonds.
The insurer said it has made more than $720 million in claims payments as of July 1 because of defaults on the debt.
