JPMorgan sues Berlin transport provider over derivatives contract

LONDON Mon Jan 20, 2014 1:05pm EST

People walk inside JP Morgan headquarters in New York, October 25, 2013. REUTERS/Eduardo Munoz

People walk inside JP Morgan headquarters in New York, October 25, 2013.

Credit: Reuters/Eduardo Munoz

LONDON (Reuters) - JPMorgan (JPM.N) is suing Berlin's public transport provider in a British court to recover the $204 million plus interest it says it is owed over an "unfortunate" derivatives contract taken out before the financial crisis.

The lawyer for the U.S. bank said Berliner Verkehrsbetriebe (BVG) was looking for anyone other than itself to blame for the losses on the collateralized debt obligation (CDO).

"Rather than simply accepting that it had been unfortunate in the events that happened in the financial markets... BVG has decided to follow a course doing everything it could to avoid paying its debts... casting around for someone to blame other than itself," Laurence Rabinowitz told a London court on the first day of the trial.

Problems arose simply because the transaction occurred just when serious cracks in the world's financial system were appearing, Rabinowitz added.

BVG, which runs the German capital's underground railway, tram, bus and ferry networks, argues that it was misled by JPMorgan and the bank's law firm, Clifford Chance, and that it did not fully understand the risks involved. BVG is due to begin its defense on Tuesday.

Clifford Chance said in a statement the "claims against us are misconceived and entirely without merit."

The transport authority maintains that the employee most closely involved in the swap had no experience of the complex financial derivative the bank had pitched to him and misunderstood it, according to court documents.

CDOs are a series of assets, often high-yield junk bonds, mortgage-backed securities, credit default swaps and other products, put together by a bank and sold in tranches according to their level of risk. They were marketed to investors as investments with a defined risk and reward.

Following the 2008 financial crisis many investors who lost tens of millions of dollars through such investments have questioned what banks knew when they modeled such products and a number have brought legal action against the banks.

Industry experts have also argued that some organizations may have lacked the sophistication to understand CDOs.

The case comes after JPMorgan paid nearly $20 billion in 2013 to settle assorted legal claims, including the "London Whale" derivatives trading scandal.

(Reporting by Clare Hutchison; Editing by Louise Heavens)

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Comments (3)
Harry079 wrote:
Fines, penalties and near zero interest rates.

Besides the banks themselves the Fed is responsible for most of this mess.

Jan 20, 2014 1:31pm EST  --  Report as abuse
If anyone at BVG reads this post or a reader knows someone who works at BVG please tell their attorneys {if they don’t already know} to examine the qualifying insurance documents required for every bundle of securities verifying the quality of the loans contained in that collateralized bundle. There is a very high degree of probability that the ratings JP Morgue “claimed” were not the actual ratings.
Remember JPM, Deutsche, & all the other criminal banking syndicates purchased “ratings” from Moody & Poor. The higher the price the better the “rating” those agencies sold to their banking clients who then turned around and pitched the toxic manure as fertilizer to unsuspecting buyers such as BVG, American Pension Funds, & the ave. Josef Sechserpackung who bought a house when the economic illusion was functioning.
The SEC has all the documents they’ll need to combine with the Insurance & Surety files to crush JP Morgue, get attorneys fees and court costs {if the Crank of England allows such a thing}.
Remember Saks-of-Gold-Man puppet Blankfein stated before an American Congressional Inquiry: “anyone who believes what they read in our prospectus isn’t sophisticated enough to be playing the game. Free speech gives us the right to lie.” I’m paraphrasing here but look it up in the Congressional Record the whole thing is right there.
Of course BVG is in trial now, but there’s still time to obtain those documents online at SEC Edgar online and weave them into the narrative of the case.
It’s just business boys. JP Morgue will write-down the loss, get a tax break and pay the costs from the billions extorted from the American taxpayers, which the Federal Preserve refers to adorably as “Quantitative Easing.”
No hard feelings right? Anyway, we’ll always have Davos… .

Jan 20, 2014 2:19pm EST  --  Report as abuse
Woltmann wrote:
Jamie the Leach strikes yet again ..

Jan 20, 2014 8:25pm EST  --  Report as abuse
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