Top banks subpoenaed by regulator

Steve Dinneen
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A LIST of top international banks has been subpoenaed by US regulators.

Goldman Sachs, Credit Suisse, Citigroup, Bank of America, Deutsche Bank, UBS, Morgan Stanley and Barclays Capital are all believed to have received subpoenas last month.

The Securities and Exchange Commission (SEC) wants to question them about the sale and marketing of synthetic collateralised debt obligations (CDOs) during the credit crisis.

CDOs are groups of mortgages or other debts that are sold in bulk to investors. Synthetic CDOs are backed by a form of insurance, called credit swaps, rather than the actual loans.

Many synthetic CDOs were linked to subprime US mortgages, which were eventually defaulted on by home buyers with poor credit histories. As a result, huge numbers of CDOs that had a triple A rating were found to be virtually worthless after the financial crisis took hold.

Now regulators are investigating whether investors were given full disclosure about the nature of the markets they were buying into.

The SEC is particularly interested to discover whether banks profited by betting against investors who purchased CDOs, implying they knew clients could lose their investments.

The complex security market is seen by some analysts as one of the major causes of the financial crisis.

The CDO investigation is part of a wider inquiry into complex debt security trading by the big banks in the lead-up to 2007.

Requests for information were also made by the Financial Industry Regulatory Authority.

None of the banks being questioned have been accused of any wrongdoing.