Subprime/Credit Crisis Developments

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The Massachusetts Secretary of the Commonwealth confirmed on Friday October 19, 2007 that it is investigating certain trades in two failed Bear Stearns funds.  The investigation, which was first reported in the Wall Street Journal last week, involves trades between Bear Stearns and two hedge funds managed by Bear Stearns that may have been made without the proper disclosures to the funds’ independent directors. 

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Read More Bear Stearns Faces Further Scrutiny as Massachusetts Regulators Probe Failed Hedge Funds

A recent report by Lehman Brothers Equity Research (“Lehman”) concluded that the estimated impact to D&O/E&O insurers from subprime issues will likely be no more than $1 billion.  Lehman Brothers arrived at this estimate using past financial institution professional liability problems as a benchmark. 

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Read More Commentators Disagree Over D&O/E&O Exposure from Subprime Litigation

Last week we reported that Prudential Financial, Inc. and one of its subsidiaries, Prudential Retirement Insurance and Annuity Company, has sued State Street & Trust Corp. and State Street Global Advisors over losses allegedly suffered by Prudential clients in two bond funds managed by State Street  (see here). 

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Read More Alaska and Idaho Reportedly Investigate State Street Over Mortgage Investments as States Increase Scrutiny of the Mortgage Crisis

Massachusetts Attorney General Martha Coakley announced on Friday that her office has filed a lawsuit against one of the nation’s largest subprime lenders, Fremont Investment and Loan (“Fremont”).  The suit accuses Fremont of predatory lending practices under Massachusetts’ 2004 Predatory Home Practices Act. 

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Read More Massachusetts Attorney General Files Suit Against National Mortgage Lender Over Subprime Mortgages

Prudential Financial, Inc. announced yesterday that one of its subsidiaries has filed a lawsuit against State Street & Trust Corp. and State Street Global Advisors over losses allegedly suffered by Prudential clients in two bond funds managed by State Street.  The suit accuses State Street of “radically” changing its investment strategies for the two funds without disclosing those changes to Prudential or its clients. 

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Read More BREAKING NEWS: Prudential Sues State Street Over Mortgage Related Losses

According to a recent report from credit rating agency Fitch Ratings, subprime lending exposure is not expected to present a significant rating issue for the reinsurance sector.  Noting that reinsurers typically seek to generate underwriting income rather than spread-based income, Fitch observes that most reinsurers have avoided heavy investments in subprime mortgage-backed securities. 

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Read More Subprime Lending Unlikely to Impact Reinsurance Sector: Rating Agency

U.S. property and casualty insurers face only  “minimal” exposure to risks associated with the subprime lending crisis, according to a recent report by credit rating agency Fitch Ratings. 

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Read More Rating Agency Says that Property and Casualty Insurers Face “Minimal” Subprime Lending Exposure

Although there has been a recent slowdown in D&O claims, it appears that D&O insurers may soon be hit with a new wave of claims arising out of the subprime lending crisis.  To date, twelve securities class actions have been filed against mortgage lenders. 

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Read More Subprime Lending Crisis Could Impact D&O Insurers

Last week, Bear Stearns & Co. announced that it has hired a law firm to investigate losses incurred by two of its hedge funds.  The hedge funds were forced into bankruptcy after losing significant amounts of money from investments in the subprime mortgage market.  The stock market is currently reeling over credit problems stemming from the collapse of the sub-prime mortgage industry. 

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Read More Bear Stearns Hires Law Firm To Investigate Ailing Hedge Fund Investments While Goldman Sachs Hedge Fund Receives $3 Billion Bailout