DZ Bank, based in Frankfurt, filed the suit yesterday in New York State Supreme Court in Manhattan. One of two clearing organizations for Germany’s cooperative banks, it has sued other banks in the same court during the past two years, including JPMorgan Chase and Bank of America, the two largest U.S. lenders.
Yesterday’s filing accuses Zurich-based Credit Suisse of making “material misrepresentations and omissions” about the underwriting standards used to issue the mortgages that were pooled into the securities, the transfer of the loans to trusts and their legal rights to receive payments on the loans.
“We will vigorously defend against this latest attempt by a sophisticated investor to improperly shift alleged losses to Credit Suisse,” Drew Benson, a spokesman for Credit Suisse in New York, said in a statement.
DZ Bank, the largest issuer of structured notes in 2012, is enjoying the best start to a year for sales of the securities, even as the market slumps to a nine-year low.
The lender sold $5.2 billion of structured notes so far this year, up from $3.9 billion over the same period last year and the most on record, according to data compiled by Bloomberg dating back to 1999.
DZ Bank is one of two clearing organizations for Germany’s cooperative lenders, allowing it to sell structured notes directly to more than 900 institutions. That’s helping it maintain sales as the market shrinks. Demand for the securities, which package debt with derivatives, is waning as regulators in the U.S. and Europe warn about their complexity and lack of transparency, and as record-low interest rates limit returns.
Still, the risks associated with structured notes promise higher yields than basic bonds, and that’s driving strong demand for the securities, said Rainer Overbeck, head of structured credit trading at DZ Bank in Frankfurt.
The case is Deutsche Zentral-Genossenchaftsbank AG, New York Branch, v. Credit Suisse Holdings (USA) Inc., 650967/2013, New York State Supreme Court, New York County (Manhattan).