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Daily Telegraph: German lender accuses UBS of ‘defrauding’ (*Royal Dutch Shell CFO Peter Voser is a director of UBS)

By Katherine Griffiths, Financial Services Editor
Last Updated: 1:34am GMT 27/02/2008

UBS has been accused of defrauding a client which invested in a portfolio of collateralised debt obligations.

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HSH Nordbank, the German sector public lender, yesterday filed a writ against UBS in New York after saying at the beginning of the week it would sue. It hopes to win millions of dollars in damages from the Swiss banking giant.

HSH said it suffered losses on a $500m (£250m) portfolio of collateralised debt obligations linked to the US residential mortgage market. The portfolio was called North Street 2002-04 and the CDOs were structured, sold and managed by UBS.

“Notwithstanding its duties, UBS evidently regarded North Street 4 not as an investment platform but as an opportunity to defraud HSH,” the German lender alleges in the writ.

“UBS knowingly and deliberately created a compromised structure based upon less desirable collateral,” the writ continues. The structure allowed UBS to take a profit of up to $120m “at the expense of HSH” on day one, it says. Over a year, UBS increased its profit “to a staggering $275m”, HSH says.

“As a direct result of UBS’s fraudulent acts and wilful breaches of duty, HSH has suffered a decline in the value of its investment in North Street 4 now in excess of $275m,” the writ says.

HSH said the $500m it invested in North Street was excess regulatory capital on which it was seeking steady, secure returns. It claims UBS broke the terms of its contract.

UBS said: “Our counterparty, HSH Nordbank, is a professional and sophisticated market participant.

The products were tailored to satisfy the counterparty’s demands. UBS invited HSH to discuss a mediation, but HSH refused and instead publicly announced that it wants to take the matter to court. UBS denies all allegations and intends to defend itself vigorously.”

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/02/27/cnubs127.xml

*Headline comment in brackets added by John Donovan

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