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Banks Subpoenaed in Subprime Investigation

CNBC.com
Wednesday, 5 Dec 2007 | 12:16 PM ET

Some of the world's biggest banks were subpoenaed by New York state prosecutors Wednesday to give information about the packaging and selling of subprime mortgages, sources familiar with the investigation told CNBC.

The banks, including Merrill Lynch, Bear Stearns and Deutsche Bank, were sent the orders for testimony by New York State's attorney general, Andrew Cuomo, as part of a review of the mortgage industry in the wake of the recent subprime-related crisis.

AG Subpoenas
Wall Street firms are subpoenaed by NY State's Attorney General, reports CNBC's Bertha Coombs

Merrill, Bear Stearns and Deutsche Bank had no comment.

According to one source, the subpoenas went out a couple of months ago, but little follow-up has taken place since then.

Lawyers said people can argue they were sold products that were not appropriate and sue the big banks, especially in the U.S. where class action is more widespread.

"I think litigation is almost a certainty in the crisis in the financial markets," Charles Evans, Partner at international commercial law firm Norton Rose, told "Worldwide Exchange."

"In the U.K. I'm seeing more enquiries in these sorts of securities," Evans added.

Also under investigation is the banks' individual relationship with credit-rating firms, according to the paper, as well as the way the debt was bundled into securities.

The aftermath of the mortgage fallout has already claimed the jobs of two Wall Street chief executives and dragged on many banks' profits.

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