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Goldman Sachs Faces Lawsuits Over $15.8 Billion Worth Of Mortgage Securities

Goldman Sachs

First Posted: 11/09/11 12:18 PM ET Updated: 11/09/11 12:18 PM ET

(Lauren Tara LaCapra) - Goldman Sachs Group Inc faces lawsuits over $15.8 billion worth of mortgage securities, the bank said in a regulatory filing on Wednesday, a more than 30-fold increase from the amount disclosed three months earlier.

The aggregate figure, which is up from $485 million previously, does not represent how much money Goldman management estimates it may lose on the litigation. Goldman lifted that estimate of "reasonably possible" losses to $2.6 billion from $2 billion.

The bigger dollar figures come as investors in mortgage-backed bond deals have raced to take legal action or enter settlement negotiations before statutes of limitations expire, and as investors continue to worry about banks' exposure to big lawsuits.

Goldman also added three European financial firms to a list of parties that have threatened to sue it, a more fulsome disclosure than some of its peers.

Goldman said HSH Nordbank, Norges Bank Investment Management and IKB Deutsche Industriebank AG have threatened to assert claims related to mortgage offerings, in addition to insurance giant American International Group Inc and Manulife Financial Corp's John Hancock unit, whose legal threats it disclosed last quarter.

Goldman said it has entered agreements with some of the potential plaintiffs to stop statutes of limitations from running, thereby allowing negotiations to take place. It did not provide estimates for damages it might incur stemming from those discussions.

Much of the increase in Goldman's aggregate figure comes from a lawsuit filed against the bank in September by the Federal Housing Finance Agency, which accused Goldman of misrepresenting the quality of $11.1 billion worth of residential mortgage-backed securities.

The FHFA filed similar lawsuits against 16 other financial firms as well. All of the defendants are fighting the lawsuits in court.

Goldman sought to provide a better explanation of what its loss estimate -- just 16 percent of the value of deals underlying the mortgage-related lawsuits -- represents.

The number does not include early-stage litigation, cases in which management believes another party may cover losses, or those in which plaintiffs have not sought specific damages, the bank said in its quarterly 10-Q filing.

In many cases, "management is generally unable to estimate a range of reasonably possible loss," it added.

Morgan Stanley made a similar disclosure in its quarterly report filed on Monday.

The explanations come months after the U.S. Securities and Exchange Commission began pressuring big banks to disclose more information about their legal-loss exposures.

SEC staff earlier sent letters to Goldman, Morgan Stanley, JPMorgan Chase & Co, Bank of America Corp, Citigroup Inc and Wells Fargo & Co demanding greater disclosures about legal proceedings and loss estimates.

In August, Reuters reported that top Bank of America lawyers knew as early as January that AIG had threatened a $10 billion lawsuit. The bank did not discuss the matter until the lawsuit was filed on August 8.

(Reporting by Lauren Tara LaCapra and Jonathan Stempel in New York, editing by Matthew Lewis)

Copyright 2011 Thomson Reuters. Click for Restrictions.

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Filed by Maxwell Strachan  |