Bank of New York Mellon and Commerzbank to do battle in US court over $1bn of losses

 
Oliver Gill
Follow Oliver
Boat Race Autumn Reception
BNY Mellon is the headline sponsor of the University boat race (Source: Getty)

A US court has ruled Bank of New York Mellon (BNY Mellon) must face Commerzbank over claims it is liable for $1bn (£800m) of losses incurred by the German lender from toxic assets it bought.

Commerzbank can pursue BNY Mellon over allegations it was in breach of contract and negligent, Manhattan district judge George Daniels said, but dismissed three other claims.

Read more: Commerzbank profits tumble for 2016 as restructuring costs stack up

Commerzbank's allegations centre on BNY Mellon's role as trustee of 72 residential mortgage-backed securities trusts and collateralised debt obligations. The financial structures were backed by home loans from lenders such as Countrywide Home Loans and NovaStar Mortgage.

The German lender believes BNY Mellon failed to require lenders to buy back non-performing loans and press servicers to address defaulted loans. The US lender's failure to act led to huge losses piling up, Commerzbank reckons.

Read more: BNY Mellon has beaten first quarter expectations

Today, the US judge said Commerzbank could pursue arguments that BNY Mellon failed to act prudently. He added the German lender can also argue there may have had a conflict of interest because taking action against lenders and servicers could threaten "lucrative business relationships", according to Reuters.

Neither BNYM nor Commerzbank had responded to requests for comment at the time of writing.

Related articles