Northern Rock steps up law suit against UBS
NORTHERN Rock has called on a US judge to advance its case against Swiss bank UBS, which it is trying to sue over a portfolio of mortgage loans the British lender bought in the years before the financial crash.
The British bank wants to sue UBS for $48.5m (£29m), arguing the investment bank knew the loans were of poor quality, but lied about the condition of the portfolio.
The state-owned remains of the lender, Northern Rock Asset Management (NRAM), took a step forward in a similar case last week, when Societe Generale’s objections to the case were dismissed by a judge, giving NRAM permission to launch the legal action.
NRAM hopes that the judge in the UBS case will accept that ruling and let it move the case forwards.
UBS is fighting the case. It has told the court that Northern Rock was responsible for carrying out the due diligence work on the mortgages, and accepted the risks involved with the investment.
The Swiss bank has also pointed to a number of similar cases where the law suits were thrown out.
For example, in a case where Phoenix Light SF tried to sue Goldman Sachs for similar reasons, the court concluded the investors should have studied the portfolio more thoroughly.
“In so holding, the court emphasised that the ‘obligation of a sophisticated investor to inquire cannot merely be excused,’” UBS’ lawyers said in a submission to the court.
If the court comes out against UBS, it could have significant ramifications for the bank.
According to NRAM’s lawyer, Bruce Grace from law firm Lewis Baach, UBS issued collateralised debt obligations totalling $19.6bn in 2007 alone.
Should NRAM win the case, some of those other investors could be encouraged to follow up with law suits of their own.