Bank goes on trial and pulls out of Canadian city

Wealth management and investment banking firm in court after investors incur $2.1 billion losses

To put it mildly, this is a difficult week for Swiss bank UBS.

The firm, which has offices across Canada, has gone on trial for $2.1 billion in losses that investors on mortgage-backed securities incurred when the US housing market collapsed and, in a new twist, it is being reported that it is pulling out of Calgary.

The Globe and Mail has quoted a bank source who has told the publication that the company will handle its wealth management, investment banking and equity research from other Canadian cities including Toronto, Montreal and Vancouver. The report suggests that Alberta’s economic difficulties were not the crucial factor in the decision.

At the same time, Reuters has reported on a federal court trial in Manhattan where US Bancorp has acted on behalf of three trusts established for mortgage-backed securities. Speaking in his opening statement at the trial, the trusts’ lawyer Sean Baldwin commented that UBS “turned a blind eye to the problems and ignored its contractual obligations.”

The lawsuit suggests that 17,082 loans were pooled across three trusts that issued securities which entitled investments to payments that were made by borrowers. However, it is alleged that 9,611 loans contained material defects – the bulk not complying with underwriting requirements or involving borrower fraud. According to Baldwin, UBS failed to vet the loans and they were acquired from “shady” lenders that ultimately failed. He suggests that $2.1 billion in losses followed.

However, Thomas Nolan, representing UBS, has suggested that the lawyers were examining the loans with “hindsight bias” and the real issue is whether the loans could be viewed as defective back when they were issued from 2006-2007.