UBS faces fine over CDO sale
SWISS bank UBS has been told to set aside $35m (£21.1m) to cover a potential fine in a row over the sale of dubious quality securities, described by the bank’s employees as “crap”.
The judge ruled that the bank had a case to answer against hedge fund Pursuit Partners, which claims that UBS sold it securities in 2007 that it knew were about to be downgraded from investment grade.
Superior Court Judge John Blawie ruled that there was sufficient probable cause to suggest that UBS had used its relationship with ratings agencies Moody’s and Standard & Poor’s to obtain inside knowledge before it sold the collateralised debt obligation (CDO) notes to Pursuit.
Judge Blawie referred to an e-mail from a UBS banker saying that he had “sold more crap to Pursuit”, among other correspondence which showed employees discussing a possible downgrade of the securities.
The sale came just as the subprime mortgage market was collapsing and Pursuit eventually lost its entire investment when the securities defaulted.
Michael Burg, acting for Pursuit, said: “Cities, pension funds and investors have lost hundreds of millions of dollars because of what banks and rating agencies did to create highly rated CDOs when they knew subprime mortgages were a problem and downgrades were coming.”
In a statement, the bank said: “The decision is not a decision on the merits or a prediction of the outcome of the case. UBS is confident that it will prevail on the merits of the case.”
UBS has been no stranger to controversy in the US after a three-year row with the Internal Revenue Service ended last month with the bank agreeing to hand over details of US citizens suspected of evading tax.