UP TO DATE 1-Deutsche Bank must face US claim over subprime disclosures

A logo design of a branch of Germany’s Deutsche Bank is seen in Perfume, Germany, July 18, 2016.

Reuters/Wolfgang Rattay

A U.S. judge on Monday stated Deutsche Bank AG (DBKGn.DE) should deal with part of a claim declaring it deceived investors who bought more than $5.4 billion of favored securities by hiding its direct exposure to the fast-deteriorating subprime mortgage market. U.S. District Judge Deborah Batts in Manhattan turned down the German bank’s bid to dismiss insurance claims with regard to approximately $2.55 billion of securities offered in November 2007 and February 2008, court papers reveal. She also dismissed insurance claims with respect to $2.9 billion of securities sold in May 2007, July 2007 and May 2008. Deutsche Bank spokeswoman Amanda Williams declined to comment. Eric Niehaus, a legal representative for the plaintiffs, did not instantly respond to demands for comment. The claim, led by industrial metals company Belmont Holdings Corp and two individuals, is one of lots of seeking to hold banks responsible for hiding dangers prior to the United States real estate and financial crises.

Investors said Deutsche Bank need to have cautioned them in offering products how it had actually taken on significant exposure to subprime markets through property mortgage-backed securities and collateralized financial obligation responsibilities. They said this could have stopped them from buying the bank’s preferred securities before their value tumbled by almost two-thirds, causing billions of dollars of losses. Batts had actually dismissed the claim in 2012, and the federal appeals court in Manhattan upheld that termination in 2014.

But the complainants got new life in March 2015 when the United States Supreme Court stated issuers could be accountable when an offering statement leaves out material realities that “conflict with exactly what a reasonable investor would extract from the statement itself.” The appeals court directed Batts to review the case again in light of the Supreme Court decision, which included pharmacy services business Omnicare Inc. In Monday’s 100-page decision, Batts said the plaintiffs plausibly alleged that Deutsche Bank understood but concealed how by the fall of 2007 that it was amassing huge subprime losses, including $4.5 billion on mortgage-backed securities that year alone.

The judge declined claims tied to the May 2008 offering since the bank had already enhanced its disclosures. The case remains in re: Deutsche Bank AG Securities Litigation, U.S. District Court, Southern District of New York, No. 09-01714. (This variation of the story corrects figure to “roughly $2.55 billion,” not “$ 1.9 billion” in 2nd paragraph. In 3rd paragraph, fixes figure to “$ 2.9 billion,” not “more than $3.5 billion”) (Reporting by Jonathan Stempel in New york city; editing by Jonathan Oatis and Alan Crosby).

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