Woori sues Citigroup over securities losses

Korean lender also set to bring BOA-Merrill Lynch, Royal Bank of Scotland to court for same reasons


Woori Bank sued Citigroup Inc. for fraud to redeem losses from collateralized debt obligations, a type of structured asset-backed security.

The Korean lender said it was set to lodge lawsuits against BOA-Merrill Lynch and Royal Bank of Scotland with a U.S. court on Friday for the same reasons.

Woori Bank suffered heavy losses worth about 1 trillion won ($852 million) after the U.S. subprime crisis ruined its investment of 1.5 trillion won between 2005 and 2008 in U.S. derivatives including CDOs and credit default swaps.

The Korean bank claims that Citigroup, Merrill Lynch and RBS sold such risky investment vehicles to Woori without giving enough information about the entailing risks. Merrill Lynch was acquired by the Bank of America in 2008.

Accusing Citigroup of leading it to invest $95 million during 2006 and 2007 in a series of fraudulent CDOs and related products, Woori filed the complaint on May 15 with the U.S. federal court in New York, according to the court document.

“The suit arises out of the defendant’s false and misleading misrepresentations and omissions in arranging and inducing the plaintiff to invest $95 million in a series of fraudulently created and marketed CDOs,” the claim says.

“Citi believes the allegations made in the suit are entirely without merit,” Citigroup said in a statement.

“We will defend the claim vigorously.”

Woori Bank has said since late last year that it planned to sue Citigroup, BOA-Merrill Lynch and RBS in the U.S.

“Lawsuits for about 400 billion won of the total investment in derivatives needed to be filed within this month before the statute of limitations expires,” said Han Seung-chul, spokesman for Woori Bank.

“We will decide later whether to lodge suits for the rest.”

Woori Bank is a unit of Woori Finance Holdings Co., Korea’s largest financial company by assets.

Woori Bank was hit hard by its investment in derivatives and the global financial crisis. In 2009, the financial regulator penalized Hwang Young-key, a former head of Woori Bank, for inflicting investment losses on a state-owned bank.

In 2010, the U.S. Securities and Exchange Commission received $550 million from Goldman Sachs in settlement after charging the investment bank for defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter.

By Kim So-hyun (sophie@heraldcorp.com)