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Home > Cases > UBS > Did UBS Dump Toxic Assets?

Did UBS Dump Toxic Assets?

UBS now faces legal claims that it dumped millions of dollars in mortgage investments on its clients. German lender HSH Nordbank AG recently filed a lawsuit seeking to recover significant losses related to investment in subprime securities.

HSH Nordbank alleges UBS sold it $500 million in collateralized debt obligations (CDOs), securities backed by subprime debt. A CDO is a portfolio of credit risks that has been divided into tranches, or segments. At the bottom, the riskiest tranche is exposed to the first losses from any credit in the pool. At the top, the AAA-rated tranche loses only after the lower tranches have gone under.

UBS sold HSH and other customers a portfolio of CDOs named North Street 2002-4. HSH Nordbank thought they were invested in mostly safe triple-A rated bonds, or the top rated tranches. However, as the subprime crisis developed, investment in this toxic debt led to a loss of at least $275 million according to the German bank. North Street's rating took a nose dive as well; ratings of North Street 2002-4 fell to a junk CC at the bottom and A- at the top.

The HSH Nordbank suit may be the first in a line of lawsuits against UBS, already the European bank worst hit by the subprime crisis. This could also be the first of many cases against banks, as investors seek to recoup massive losses from risky assets linked to the collapse of the U.S. subprime mortgage market. The litigation of these types of cases will focus on the adequacy of disclosure documents, sales practices, and investor suitability.

The HSH lawsuit, and others which appear likely to follow, adds to UBS's subprime related problems; the Swiss banking giant is already facing investigation by the Securities and Exchange Commission, federal prosecutors, and the Swiss Federal Banking Commission. Last year, UBS took $18.4 billion in write-offs from subprime mortgage securities gone bad. These huge writedowns resulted in the Swiss bank's first ever annual loss. UBS also had to seek a capital injection of nearly $12 billion from Singapore and an unidentified Middle East investor, a move which was approved just recently by UBS shareholders.

With UBS still holding at least $27.59 billion in these toxic subprime securities, and billions more in other risky mortgages, more writedowns are expected this year.

In the summer of 2007, our group, who individually and collectively have extensive experience in representing investors against Wall Street, formed an affiliation. Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage related investment losses. Contact us.


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