Funds managed by QVT Financial have filed a lawsuit against Eurohypo and two of its Delaware subsidiaries.
Funds managed by QVT Financial have filed a lawsuit against Eurohypo and two of its Delaware subsidiaries.
Eurohypo is wholly owned by the Commerzbank group.
The action was filed on behalf of the two Delaware trusts established by Eurohypo that had issued profit-dependent securities held by the QVT Funds.
The Delaware complaint alleges that Eurohypo caused the trusts to raise approximately USD1.2bn of profit dependent securities in the capital markets, thus communicating that Eurohypo would remain a profit-maximising entity and creating such an expectation for the holders of the trust securities.
In June 2007, Eurohypo entered into a German law domination agreement with Commerzbank, by which it contracted away its power to remain a profit-maximising entity.
By contracting away power to maximise profits and by failing to the make payments in 2010, Eurohypo breached its contractual and fiduciary duties to the trusts and to the holders of the trust securities, the complaint alleges.
Furthermore, as payments are due on participation securities issued by Eurohypo, Eurohypo is contractually required to make payments to the trusts and on the trust securities.
The QVT funds seek damages on behalf of the trusts of approximately USD68m as well as a declaration from the court that the missing payments are immediately due and payable to the trust security holders.
The QVT funds own approximately USD226m nominal amount of the trust securities as well as participation securities issued directly by Eurohypo. Commerzbank has stated that if Eurohypo is forced to make payments on profit dependent securities, such securities may no longer qualify as bank regulatory equity for Commerzbank.
QVT says it has spent the past nine months attempting to engage Eurohypo and Commerzbank in a constructive dialogue to address the payment failures on these instruments. QVT says it is disappointed that Commerzbank refuses to engage in such dialogue.
In August of 2010, an affiliate of the QVT funds brought an action against Eurohypo in Germany to secure payment on the participation securities and today the QVT funds initiated the action in Delaware.
