HSH Nordbank AG v. UBS AG

On March 27, 2012, Germany’s HSH Nordbank AG (“HSH”) was left with no hope to recover from a $500 million loss when a New York Appellate Court dismissed its last standing claim against UBS. The loss stemmed from a credit default swap transaction, in which, HSH, in exchange for a stream of premium payments, assumed the risk of the first half billion dollars on a $3 billion portfolio of securities …

composed mainly of mortgage-backed securities and instruments from real estate investment trusts that collapsed after the U.S. housing bubble burst in 2008.

HSH sued UBS in New York County Supreme Court, stating numerous claims, including negligent misrepresention and fraud. HSH alleged UBS misled it by using credit rating agencies and models to assess the portfolio’s risk that UBS rejected for its own use in addition to engaging in a form of “ratings arbitratge” by selecting securities for the portfolio that were mispriced relative to their ratings, and then used its own superior knowledge to profit from those discrepencies.

The New York County Supreme Court dismissed HSH’s negligent misrepresentation and punitive damages claims, but denyed the motion to dismiss fraud in the inducement claims, and both parties appealed ...

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