Israel’s Bank Hapoalim has filed a massive $720 million suit against Bank of America, Merrill Lynch and Countrywide over its losses in the U.S. subprime crisis, alleging that the U.S. institutions misled and defrauded it.
Among Israel’s financial institutions, Hapoalim suffered the worst losses in the subprime crisis due to its investments in mortgage-backed securities.
Between 2005 and 2007, the bank, led by Shlomo Nehama and Zvi Ziv, snapped up mortgage-backed securities in an attempt to meet its goal of a 15% return on equity by 2007.
By the end of that year, the bank had invested $3.65 billion in such securities. But when the subprime crisis broke out in mid-2007, these securities collapsed as American homebuyers defaulted on their mortgages.
Only then did many investors realize that the securities were based on mortgages given to some of America’s weakest borrowers, who found themselves unable to pay the moment their homes stopped appreciating in value.
In 2008, Hapoalim booked a NIS 3.9 billion loss due to its investments in instruments including credit-default swaps, mortgage-backed securities and structured investment vehicles - all complex, poorly understood instruments that nosedived during the crash. The losses were on assets Hapoalim bought from Bank of America, Merrill Lynch, Countrywide and other financial institutions. Hapoalim is considering filing suits against these other companies as well.
It filed its suit against Bank of America, the United States’ second-largest bank, two weeks ago in Manhattan federal court.
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