German bank planning to sue UBS over portfolio losses.
LONDON: HSH Nordbank, a state-controlled German bank, said Sunday that it planned to sue UBS, a Swiss bank, over a portfolio of complex debt products, which it accuses UBS of misrepresenting and mismanaging.
HSH Nordbank, with headquarters in both Hamburg and Kiel, said it wanted to recover “significant losses” from a $500 million portfolio of collateralized debt obligations, or CDOs, linked to the U.S. mortgage market, which it bought from UBS in 2002. HSH said it planned to file a claim against UBS this week in New York State, under whose legislation the original deal was constructed.
A spokesman for UBS, Dominik von Arx, declined to comment.
Some investors have started to file legal claims against financial institutions as they aim to recover part of their losses accumulated during the subprime mortgage crisis.
The top securities regulator in Massachusetts this month accused Merrill Lynch of defrauding the city of Springfield with subprime-linked investments. The claims cast a light on how large financial services firms sold complex debt products, which are losing value in the subprime loan crisis.
“Our claims against UBS will show that the manner in which the investments were sold to HSH Nordbank and UBSs subsequent management of the assets were clearly contrary to our interests,” said Bernhard Blohm, head of communications at HSH Nordbank.
HSH Nordbank claims that when it made the investment it was supposed to be “conservatively managed by UBS according to prudent investment objectives” but that UBS “appears to have condoned actions which benefited only itself, at the expense of its clients.” The bank said it repeatedly tried to speak to senior management at UBS about its concerns but that it was left with no option but to start legal proceedings.
German banks, like HSH Nordbank, piled on such complex debt products over the past decade to diversify their holdings and increase their income at a time when revenue growth in their home market was slowing.
For UBS, the claims come as senior managers prepare to face shareholders at an extraordinary shareholders meeting Wednesday in Basel, Switzerland, to discuss record write-downs at the bank due to its exposure to the global credit crisis through CDOs and other securities and the sale of a stake in the bank to a funds in Singapore and the Middle East. UBS was one of the financial institutions hardest hit by the credit crisis as it had to write down more than $18 billion.
But HSH Nordbank was also hit by the recent market turmoil - even without the portfolio it bought from UBS. This month, Nordbank provided financing to cover its \3.3 billion, or $4.9 billion, structured investment vehicle that uses short-term debt to invest in higher-yielding securities, to prevent a fire sale of the assets.
