Royal Bank of Scotland was sued by the successors of WestLB for allegedly misleading the failed lender in a 2007 derivatives investment that lost more than 60% of its value.
Bloomberg reports that WestLB lost $42m on a $66.45m deal linked to constant proportion debt obligations created by RBS’s ABN Amro unit, Erste Abwicklungsanstalt and Portigon AG, the two entities that control the remnants of the bank, according to court documents filed on 6th September in London.
The triple A-rated instruments were “considerably riskier” than advertised, while ratings companies assessed them using faulty models provided by ABN, according to the claim. Portigon is helping EAA sell WestLB’s holdings and wind up its operations.
CPDOs, leveraged vehicles that comprised default insurance linked to company indexes, lost almost all their value after the 2008 collapse of Lehman Brothers Holdings caused the price of underlying credit-default swaps to fall. Banks have been sued over a variety of products that faltered after the crisis, ranging from interest-rate swaps to mortgage-backed securities.
Twelve Australian towns lost more than 90% of what they invested in ABN Amro’s “Rembrandt” notes, and won $18.5m in damages after suing ABN and McGraw Hill Financial Standard & Poor’s for misleading them.
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image: © Lisamarie Babik