California’s two state pension funds will receive a combined $324 million in a settlement with Standard & Poor’s over the Wall Street credit ratings firm’s hyping of toxic mortgage-backed securities sold during the housing bubble.
CalPERS said it will receive $301 million, while CalSTRS will get $23 million. The settlements were part of a multistate agreement, announced Tuesday by the U.S. Justice Department and the attorneys general of 19 states and the District of Columbia, in which S&P agreed to pay $1.5 billion over the gold-plated ratings it assigned to various mortgage securities.
The payouts to CalPERS and CalSTRS won’t make the two funds whole for the losses they suffered on mortgage-related securities rated by S&P. CalPERS and CalSTRS lost a combined $1.36 billion on S&P-rated securities issued before the market crashed, according to a lawsuit filed against S&P by Attorney General Kamala Harris in 2013.
Nonetheless, pension officials pronounced themselves pleased.
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“This money belongs to our members and will be put back to work to ensure their long-term retirement security,” said CalPERS Chief Executive Anne Stausboll in a prepared statement.
With the latest settlement, Harris said CalPERS and CalSTRS have recovered $900 million from the likes of Bank of America and Citigroup Inc. over the sale of faulty mortgage-backed securities.
“As S&P admits under this settlement … the company declined to downgrade underperforming assets because it was worried that doing so would hurt the company’s business,” said U.S. Attorney General Eric Holder in a prepared statement.
“S&P played a central role in the crisis that devastated our economy by giving AAA ratings to mortgage-backed securities that turned out to be little better than junk,” said Stephanie Yonekura, acting U.S. attorney for Los Angeles, in a prepared statement. “This historic settlement makes clear the consequences of putting corporate profits over honesty in the financial markets.”
S&P’s parent company, McGraw Hill Financial Inc., said the settlement is in the company’s best interests and it “is pleased to resolve these matters.”
State and federal officials have been fighting with the nation’s leading investment banks and credit-ratings agencies for years over big investment losses. The settlement announced Tuesday resolves all of those cases as far as S&P is concerned.
Along with S&P, rival ratings agencies Moody’s Investors Service and Fitch Ratings were sued by CalPERS in 2009 over $1 billion the pension fund lost investing in something called “Structured Investment Vehicles.” Such instruments were a blend of mortgages and car loans. The agreement announced Tuesday includes a $125 million payment to CalPERS to settle that case.
The big pension fund already settled with Fitch but is continuing to press its suit against Moody’s.
Call The Bee’s Dale Kasler, (916) 321-1066. Follow him on Twitter @dakasler.