The cases concern securitization trusts backed by roughly $2.9
billion of home loans, and are among six lawsuits in New York
accusing the German bank's DB Structured Products Inc unit of
reneging on its contractual duties to address problem loans, court
In a 35-page decision, U.S. District Judge Alison Nathan in
Manhattan on Thursday said HSBC USA NA, acting as trustee for the
four trusts, was entitled to pursue damages claims, and to determine
the extent to which Deutsche Bank knew of problems in the underlying
loans at the time of the securitizations.
Many lawsuits accusing banks that packaged mortgages into securities
prior to the 2008 crisis of concealing loan defects or deceiving
investors about how the loans were underwritten, resulting in losses
when market conditions deteriorated.
HSBC, a unit of HSBC Holdings Plc had accused Deutsche Bank of
dumping a "massive number" of home loans into the four trusts that
it knew breached its representations and warranties, and ignoring
its contractual duty to buy back, fix or substitute for the bad
Deutsche Bank countered that buybacks were the only remedy, and that
HSBC failed to identify which loans were covered.
It also said HSBC was suing merely at the behest of Amherst Advisory
& Management LLC, a "distressed debt" specialist that bought the
securities at deep discounts in order to pursue the claims for
breaches of representations and warranties. Amherst is not a party
to the lawsuit.
In her decision, Nathan said it was premature to dismiss HSBC's
damages claims, saying that several courts allowed damages when loan
buybacks proved impossible, even if such buybacks were the "sole"
contractual remedy available.
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She also said HSBC was entitled to discovery to determine how early
Deutsche Bank might have been aware of problems and become obligated
to address them.
The judge dismissed as unnecessary an HSBC request that Deutsche
Bank cover its litigation costs, saying HSBC may seek reimbursement
"as part of the coercive remedy it is pursuing under its breach of
Deutsche Bank spokeswoman Renee Calabro and HSBC spokeswoman Juanita
Gutierrez both declined to comment. Lawyers for the banks did not
immediately respond to requests for comment.
The cases, all in the U.S. District Court, Southern District of New
York, are: ACE Securities Corp Home Equity Loan Trust, Series
2007-HE3, by HSBA Bank USA NA as Trustee v. DB Structured Products
Inc, No. 13-1869; Series 2007-WM2, No. 13-2053; Series 2007-HE4, No.
13-2828; and Series 2007-HE5, No. 13-3687.
(Reporting by Jonathan Stempel in New York;
editing by Richard
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