M&T Bank Faces Lawsuit Over Allegations of Failing to Protect Investors
M&T Bank, a leading financial institution based in Buffalo, New York, could potentially face losses due to a lawsuit launched by a group of investors. The investors claim that Wilmington Trust, M&T Bank’s subsidiary, failed to protect them from the fallout resulting from the collapse of subprime auto lender Tricolor Holdings.
The bank has stated that it will “vigorously defend itself” against the legal allegations, as confirmed in a securities filing. However, the financial hit that the bank may incur has not been specified, raising questions about the potential impact of the lawsuit on the bank’s financial health.
Details of the Lawsuit
The lawsuit was filed in a New York state court on January 12, accusing Wilmington Trust of breaching contracts and fiduciary duties, thereby causing the plaintiffs to suffer significant financial losses. The plaintiffs include a variety of investment vehicles representing around 10 different entities.
In addition, the lawsuit alleges that Wilmington Trust, along with co-defendant Vervent, a loan-servicer, has failed to distribute millions of dollars that are due to the investors. The plaintiffs seek unspecified monetary damages, prejudgment interest of 9%, and all expenses and fees related to the lawsuit.
However, M&T Bank has stated in its latest annual report that it isn’t currently possible to estimate its potential legal liability in relation to the Tricolor business. The bank also noted that any losses from the lawsuit aren’t expected to materially affect its financial position as of December 31, 2025.
Background of the Case
Tricolor Holdings, a Dallas-based company, filed for bankruptcy in September, leading to the closure of several of its locations across Texas and the Southwest. The bankruptcy resulted in significant credit losses for several bank lenders, including JPMorganChase, Fifth Third Bancorp, Origin Bancorp, and Triumph Financial. The losses ranged from $20 million to $200 million due to exposure to Tricolor.
Wilmington Trust, as custodian of several trusts, was responsible for managing the securitization of auto loans originated by Tricolor. These loans were then sold as asset-backed notes to investors, including the plaintiffs. The plaintiffs claim that Wilmington Trust failed in its responsibility to ensure the legitimacy of the auto loans originated by Tricolor, alleging that the bank would have detected Tricolor’s fraudulent activities if it had diligently performed its custodial duties.
The Road Ahead
As the legal battle unfolds, the financial implications for M&T Bank remain uncertain. The bank has said that any “reasonably possible losses” from pending or threatened litigation wouldn’t exceed $25 million beyond any already-recorded liability. However, they also noted that actual losses could significantly vary.
Meanwhile, the lawsuit continues to move through the court system. Last week, Wilmington Trust filed a motion to move the lawsuit from New York state court to federal court, indicating the complex nature of the case.
The allegations against Wilmington Trust highlight the potential risks and responsibilities involved in the role of a custodian in financial transactions. As the case progresses, it will shed light on the extent of a custodian’s duty to protect investors and could set a precedent for similar cases in the future.
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