Did UBS Dump Toxic Assets?
German Lender HSH Sues for $275 Million, Saying It Was Duped
>>>This is the new asbestos for the legal profession. I can't believe that anybody would be calling a bottom with so much uncertainty in every direction: 1) has housing bottomed (no), 2) will congress interfere and force write-downs (probably), 3) will he insurers go belly up(certainly w/o help from the banks), etc, etc.<<<
By CARRICK MOLLENKAMP
February 27, 2008; Page C2
Swiss banking giant UBS AG, already among the hardest hit by losses on mortgage investments gone bad, now faces legal claims that it dumped some of the most toxic pieces of those investments on its clients.
In a lawsuit that offers a rare inside perspective on the dealings behind the current financial crisis, midsize German lender HSH Nordbank AG alleges that UBS sold it $500 million in complex investments that UBS's now-defunct hedge fund, Dillon Read Capital Management, later used as a receptacle for troubled subprime-mortgage securities. The German bank says UBS's actions led to a loss of at least $275 million.
The lawsuit, filed late Monday in New York state court, portrays HSH as an unsophisticated investor duped by UBS, saying the Swiss bank "exploited the structure for its own ends, at HSH's expense, in violation of its contractual and fiduciary duties." HSH is demanding at least $275 million in restitution, plus punitive damages.
In a statement, UBS said it will defend itself and that HSH is a "professional and knowledgeable German bank." UBS has filed a counterclaim in London but hasn't made it public.
Such claims augur a new and acrimonious stage in the global financial downturn, as disgruntled banks and investors turn to the courts to recoup massive losses. In the U.S., municipalities are suing banks over souring investments or for contributing to the mortgage crisis.
Real-estate investor Luminent Mortgage Capital Inc. has sued two banks, alleging that they mispriced mortgage securities. In December, Britain's Barclays PLC sued Bear Stearns Cos. and two Bear fund managers, alleging that it had been misled about an investment and disclosing private correspondence between the two banks.
HSH specializes in shipping finance, but has also created its own complex investment products, which it has sold to investors. In 2005, HSH pursued a legal case against Barclays, alleging that the British bank deceived it in a derivatives trade. The two settled confidentially.
"The only way to recoup these kinds of monies is through litigation right now," says Gerald Silk, who is leading a special subprime-litigation team at New York law firm Bernstein Litowitz Berger & Grossmann. Mr. Silk isn't involved in the HSH lawsuit.
The civil complaints come at a time when UBS and other big banks increasingly are becoming the targets of investigations into potential wrongdoing. The Securities and Exchange Commission and Department of Justice are looking into whether UBS and Merrill Lynch & Co. properly assessed the value of troubled securities they held.
Together with Merrill and Citigroup Inc., UBS was one of the biggest players in the business of repackaging mortgage bonds into pools known as collateralized debt obligations, or CDOs, and has been among the hardest hit by losses on mortgage investments -- more than $18 billion in 2007. Today, UBS shareholders will vote on the bank's plans to boost its capital with an injection of 13 billion Swiss francs ($11.93 billion) from the government investment arm of Singapore and an unidentified Middle-Eastern investor. |
