Banks have taken a public flogging for allegedly causing the worst financial crisis in decades. Now, investors may have an opportunity to literally make them pay for their mistakes.
A security called Rescap Liquidating Trust, which isn't technically a stock but can be bought through a regular brokerage account, was created precisely for the purpose of suing banks that originated poorly performing mortgages in the years leading up to the crisis. Investors in the trust are entitled to any litigation proceeds Rescap recovers from billions of dollars in claims against several dozen banks. Units of the trust, which has a market capitalization of $1.8 billion, have soared 127 percent since listing in January.
Where did Rescap come from? The trust was originally a company focused on securitizing mortgages and packaging them into units to be sold to investors. Many of those residential-mortgage backed securities, or RMBS, plummeted in value during the financial crisis. Holders of the RMBS sued Rescap's predecessor, Residential Capital, which filed for bankruptcy in 2012.