According to a law firm press release, the complaint alleges that the Defendants misrepresented to investors the quality of approximately $20 billion of National City’s residential real estate loans and the sufficiency of the Company’s reserves for the known risks of those loans. Such misrepresentations were contained in the Company’s quarterly and annual reports, filings with the Securities and Exchange Commission, as well as the Prospectus Supplement, which was issued to investors in connection with the offering (“Offering”) of the 4.0% Notes on or about January 23, 2008.
As alleged in the complaint, National City engaged in undisclosed reckless lending practices, which consisted of, among other practices, providing inherently high-risk loans to non-creditworthy borrowers with minimal or no documentation of income and little or no collateral on the property.
Despite these reckless lending practices, Defendants represented prior to and during the Class Period that the Company’s residential real estate loans were prime quality, conforming loans that were made to borrowers in good credit standing, that National City had a strong capital position and was positioned to absorb probable losses inherent in the Company’s loan portfolio.
As a result of the Company’s imprudent lending practices, National City was ultimately forced to write-off billions of dollars of defaulting residential real estate loans and became the subject of regulatory scrutiny by the Office of the Comptroller of the Currency.
Investors began to learn the truth about National City’s actual lending practices and financial condition on March 14, 2008, when a Bloomberg News article reported that Moody’s had downgraded National City’s rating due to likely mortgage-related losses and noted possible future downgrades. Upon this news, the price of the 4.0% Notes dropped $254.40 per Note, or 26%, from $981.30 per Note on March 13, 2008 to $726.90 per Note on March 18, 2008. Subsequent to that announcement, a July 16, 2008 New York Times article, entitled, “Seeing Bad Loans, Investors Flee From Bank Shares,” noted that despite the Company’s $7 billion capital raise in May 2008 and assurances that its Tier 1 capital ratio ranked among the highest in its class, the Company had lost nearly 90 percent of its value in the last year. Upon this announcement, the price of the 4.0% Notes dropped an additional $164.50 per Note, or 21%, from $800.00 per Note on July 9, 2008 to $635.50 per Note on July 17, 2008. Shortly thereafter, a September 26, 2008 Reuters article, entitled “Wachovia, National City Shares Tumble on Bailout, WaMu,” reported a 40 percent drop in National City’s common stock upon investor concern regarding the Company’s severe mortgage losses as regulators seized Washington Mutual Inc., with analysts characterizing National City as a “mortgage financing company at this point” and “likely either a candidate for FDIC seizure,” or “a candidate for a dilutive capital raise.” Upon this news, the price of the 4.0% Notes dropped an additional $242.50 per Note, or 35%, from $695.00 per Note on September 25, 2008 to $452.50 per Note on September 30, 2008.
As a result of these and other corrective disclosures, the price of the Company’s 4.0% Notes fell a total of $607.70 per Note, or 57%, from the initial Offering price of $1060.20 per Note on January 29, 2008 to $452.50 per Note on September 30, 2008.
On December 31, 2008, a note of case opening error was entered into the docket. The case should have been opened as MDL Case. Case will be refiled under MDL 2003 National City Corporation Securities Derivative & Erisa Litigation. New Case number is 1:08-nc-70016. This case will be terminated.
On October 8, 2010, Judge Solomon Oliver Jr. granted the motion to appointed lead plaintiff and approved lead plaintiff’s choice of lead and liaison counsel. On November 12, 2009, the lead plaintiff filed an Amended Class Action Complaint, naming additional defendants. The defendants responded by filing a motion to dismiss, but a Second Amended Complaint was filed on February 19, 2010. The defendants again responded by filing a motion to dismiss. Before any ruling, on August 18, 2010, a motion for preliminary approval of the stipulation and agreement of settlement was filed. The proposed settlement was in the amount of $22.5 million. The settlement was preliminarily approved on August 19, 2010, and the final hearing was set for November 30th. That day, Judge Oliver granted the final settlement.