UBS blamed in U.S. trial for $2.1 billion in mortgage bond losses

Mon Apr 18, 2016 3:05pm EDT
 
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By Nate Raymond

NEW YORK (Reuters) - UBS AG went to trial on Monday over $2.1 billion in losses that investors incurred on mortgage-backed securities after the collapse of the U.S. housing market.

The non-jury trial in Manhattan federal court stems from a lawsuit being pursued by U.S. Bancorp on behalf of three trusts established for mortgage-backed securities, the type of financial product at the heart of the 2008 financial crisis.

Sean Baldwin, the trusts' lawyer, in his opening statement said UBS contractually agreed that the mortgages underlying those securities would meet certain standards. When pervasive defects emerged, the bank refused to buy them back, he said.

"UBS's strategy has always been the same throughout this process: Turn a blind eye to the problems and ignore its contractual obligations," he said.

But Thomas Nolan, a lawyer for UBS, told U.S. District Judge Kevin Castel that the trusts' lawyers were looking at the loans with a "hindsight bias," and the question was whether the loans were seen as defective when they were issued in 2006 and 2007.

"Sophisticated parties on both sides knew what they were getting into," Nolan said.

The case is one of a handful to go to trial in recent years over losses incurred on mortgage bonds following the U.S. housing market meltdown.

The lawsuit follows a related action against UBS by bond insurer Assured Guaranty Ltd over the same mortgage backed securities. UBS in 2013 agreed to pay $358 million to Assured, which was represented by the same lawyers as the three trusts.   Continued...

 
The logo of Swiss bank UBS is seen at the company's headquarters in Zurich February 10, 2015. REUTERS/Arnd Wiegmann