Wells fargo, kpmg reach $627-million settlement of lending suit

_This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts._ The legal fallout from high-risk, boom-era mortgage lending

never stops, it seems -- the latest example being Wells Fargo & Co.’s $590-million proposed settlement of a class-action lawsuit centering on controversial ‘Pick-a-Pay’ loans issued by

Oakland’s World Savings. The San Francisco bank disclosed the deal Friday in its quarterly report to the Securities and Exchange Commission. It would settle claims brought against Wachovia

Corp., the big bank Wells took over during the financial crisis, which, in turn, had acquired World Savings’ parent, Golden West Financial, in 2006. Wells said its financial reporting would

not be affected because it already had set aside funds to cover the gigantic settlement. Wells admitted no liability or wrongdoing by Wachovia in settling with the plaintiffs, mainly pension

funds, who had bought bonds and preferred stock from Wachovia in 2007 and 2008. In several lawsuits consolidated before a federal judge in New York, they alleged that Wachovia had been

negligent in failing to disclose the risks embedded in the portfolio of Pick-a-Pay loans, which gave borrowers the option of paying so little that the amount they owed went up instead of

down. The accounting firm KPMG, which audited Wachovia’s books, has agreed to provide an additional $37 million as part of the settlement, bringing the total to $627 million, said Darren

Robbins, a San Diego attorney representing the plaintiffs. That would be the largest total settlement so far of any securities class-action claims stemming from the credit crisis, Robbins

said. The runner-up: a $624-million settlement by Bank of America and KPMG in federal court in Los Angeles of a shareholder class action alleging that Countrywide Financial Corp. of

Calabasas, now part of B of A, misled investors about its financial condition and lending practices. On a related legal front, Bank of America recently agreed to pay a far greater amount --

$8.5 billion -- to settle demands by a group of big investors that it buy back soured Countrywide loans that had been bundled up to back mortgage securities. Many big banks, including Wells

Fargo, are facing similar demands by investors in bonds backed by subprime and other high-risk mortgages. A Wells Fargo spokeswoman, Mary Eshet, said the bank agreed to the settlement ‘to

avoid the distraction, risk and expense of on-going litigation.’ Wells Fargo’s shares were down 63 cents, or 2.4%, at $25.11 in midday trading. The stock has fallen more than 13% since its

recent high of $29.01 on July 22, before the big sell-off in the stock market. RELATED: Wachovia to Buy Golden West S&L Wells Fargo suffering from weight of Wachovia’s mortgage losses

CEO says B of A is turning the corner on its Countrywide woes -- E. Scott Reckard