Sunday, February 24, 2008

HSH to sue UBS over subprime losses

(FT) UBS, the European bank worst hit by the subprime crisis, faced another blow after HSH Nordbank, the German public sector lender, said it would sue to recover subprime losses.

HSH said Sunday it would file a suit this week to seek repayment of “hundreds of millions” of losses on a portfolio of collateralised debt obligations structured and managed by UBS. UBS declined to comment.

The move comes days before an emergency UBS shareholders’ meeting, at which investors will be asked to approve measures to raise SFr19bn (€11.8bn), including SFr13bn from Singapore and Saudi Arabia.

Wednesday’s meeting in Basel will bring severe criticism of Marcel Ospel, the Swiss group’s veteran chairman, for his handling of the subprime affair, which has seen UBS take $18.4bn (€12.4bn) in writedowns. Many analysts expect UBS to post more writedowns in the first quarter on securities linked to US residential mortgages.

HSH said it aimed to recover losses on North Street 2002-04, a $500m portfolio of collateralised debt obligations linked to the US residential mortgage market. The CDOs were structured, sold and managed by UBS.

The portfolio was bought in 2002 by Landesbank Schleswig-Holstein before it merged with Hamburgische Landesbank to create HSH. HSH said UBS did not act in line with obligations under the contract and changes were made in the portfolio.

“Our investment in the North Street programme should have been managed conservatively,” HSH said in a statement. “We will show that UBS acted wholly against our interests in its management of the investment.”

HSH said UBS did not respond to requests last year to settle out of court.

The subprime crisis has taken a heavy toll on German public sector banks. SachsenLB was sold last year after it emerged the Saxon Landesbank and an affiliate held €43bn in risky investments. WestLB and BayernLB (the landesbanks of North Rhine-Westphalia and Bavaria) also recorded steep losses. IKB, a Düsseldorf-based lender, came close to bankruptcy in spite of two injections of funds and had to be bailed out by the federal government last month.

HSH said this month it would postpone a planned initial public offering in the fourth quarter of this year and instead ask shareholders for a €1bn capital increase.

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