US banks such as Citigroup, Merrill Lynch and UBS are facing a wave of multibillion-dollar class-action lawsuits, as law firms race to build cases against them on the basis that they did not reveal to investors the dangers lurking in their sub-prime mortgage-related investment portfolios.

The investors are seeking compensation for their losses in the American mortgage meltdown.

Barclays launched a legal action against Bear Stearns this week in which it seeks to retrieve about $400 million (£201 million) that it lent to two hedge funds run by the Wall Street firm.

The funds collapsed in the summer under the weight of their sub-prime investment losses.

Lawyers are also preparing cases against financial services firms including Countrywide, America’s biggest mortgage lender, and Etrade, the online brokerage, whose share prices suffered massive declines as the damage inflicted on their businesses by the mortgage crisis came to light.

Fred Fox, a partner at Kaplan Fox, the securities law firm in New York, said: “This is a big deal. We are looking at all sorts of possible cases; some we initiate and some come from our clients.

"We are examining them from various different angles and some could potentially result in payouts of billions and billions of dollars.”

Mr Fox is preparing cases against Citigroup, Merrill Lynch and UBS, although he has yet to file in court.

Another partner at a big US law firm added: “There’s going to be a lot of litigation in this area. Here in the US lawyers are holding conferences to talk about this. This is going to be a big new area of work for us.

"It’s going to start with the banks and then some of it may spill over into the insurance companies.”

Under US legislation, the law firm that files a class-action lawsuit in court must publish the charges within 20 days.

Plaintiffs then have 60 days in which to apply to the court.

The court then appoints the party that it believes has lost the most in the case to be the lead plaintiff, while other plaintiffs are rolled into the same claim.

In the cases against Citigroup, Merrill Lynch and UBS, a lead plaintiff has not yet been selected.

Merrill Lynch and Citigroup have said that the suits have no merit, while UBS has declined to comment.

Thomas DiNapoli, the New York state comptroller, and William Thompson, the New York city comptroller, were chosen this month as the lead plaintiffs in the case against Countrywide, which declined to comment.

The US mortgage giant is facing five class-action lawsuits, accused of inflating its earnings by overstating its loan loss reserves and misleading investors about its lending criteria.

The Barclays suit against Bear Stearns alleges that the Wall Street firm repeatedly misled the British bank about the true state of the collapsed hedge funds’ performance.

Bear Stearns dismissed Barclays’s claim as “an attempt ... to avoid taking responsibility for its own actions”.

The Barclays suit adds to other cases against the Wall Street firm, including a criminal investigation by the US Attorney in Brooklyn into the funds’ collapse.

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