Deutsche Bank AG has failed to win the dismissal of four US lawsuits seeking to force it to pay damages or buy back troubled home loans it had packaged into residential mortgage-backed securities before the 2008 financial crisis.
The cases concern securitisation 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 papers show.
In a 35-page decision, US District Judge Alison Nathan in Manhattan 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 securitisations.
Many lawsuits accuse banks that packaged mortgages into securities before 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 loans.
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 represent-ations 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.
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 contract claims”.
Deutsche Bank spokeswoman Renée Calabro and HSBC spokeswoman Juanita Gutierrez both declined to comment. Lawyers for the banks did not immediately respond to requests for comment.