More Deutsche Bank Pain As Dexia Files $1 Billion Lawsuit Against Bank For Selling It Toxic Mortgages

Tyler Durden's picture

Step aside Goldman "Shitty Deal" Sachs and JP Morgan MBS settlements. Enter Deutsche Bank. After the two biggest American hedge funds already settled with the SEC over their transgressions of selling MBS to clients even as they were betting actively against such securities, now it is Deustche Bank's turn, and more specifically head Deutsche bank MBS trader Greg "I Am Short Your House" Lippman. And unlike Goldman and JP Morgan which actually are profitable, and could afford the settlement, life for DB may not be just as simple. Reuters reports: "Bernstein Litowitz Berger & Grossman filed a scorcher of a suit against Deutsche Bank Wednesday, claiming that the bank sold financial services group Dexia more than $1 billion in mortgage-backed securities at the same time Deutsche Bank bet $10 billion that those notes would fail. The 175-page (!) New York state supreme court complaint is Bernstein Litowitz's second major new MBS filing in a week, coming on the heels of Allstate's suit against Morgan Stanley. The Deutsche complaint is filled with eye-popping allegations. Bernstein claims, for instance, that senior traders at the bank described the securities they were peddling to clients like Dexia as "crap," "pigs," and "generally horrible." One trader, Greg Lippman, allegedly wrote, "DOESN'T THIS DEAL BLOW" in an e-mail to a colleague about an offering Dexia sank $23 million into. In another e-mail the complaint cites, this one to a hedge fund investor, Lippman allegedly disclosed a $1 billion short position on mortgage-backed securities that was going to make him "oceans of money." And courtesy of said oceans, Greg will be more than happy to afford the drop that will be imminent settlement he wil have to pay as nothing ever changes. 


As in Allstate's Morgan Stanley suit, Bernstein Litowitz found confidential witnesses to back its claims. For instance, the complaint quotes a witness from the mortgage-loan packager Lydian Trust Securities saying that 80 percent of the mortgage loans he reviewed in connection with Deutsche Bank offerings contained underwriting deficiencies. Deutsche Bank "really didn't care," the witness said, according to Dexia's complaint. In fact, almost 35 percent of the loans underlying Deutsche Bank mortgage-backed certificates are in default or close to it, the complaint says.

"The complaint sets forth strongly compelling facts that Deutsche Bank knew that the representations it was making to clients like Dexia were false at the time the statements were being made," said Dexia counsel Gerald Silk of Bernstein. "Deutsche Bank secretly placed a wager with its own money based on its own knowledge that these securities were toxic and would fail."

A Deutsche Bank spokeswomantold Tom Hals of Reuters that the Dexia suit is without merit and the bank intends to defend itself vigorously.

So, as if you needed any more reasons to buy those Deutsche Bank CDS. And just like MBIA, this could be a case where litigation recoveries help a company on the brink. Perhaps a long DB Sub - short Dexia Sub CDS trade here would not be the worst one...

h/t There is No Spoon

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slaughterer's picture

Deutsche "Scheisse Geschaeft" Bank, bitchez.

Careless Whisper's picture

oceans of money

just a normal, very boring, old-fashioned bank, no criminal wire fraud, mail fraud, or securities fraud, going on there.

Ahmeexnal's picture

This will soon escalate from financial war to full blown euro-armageddon. Euro-fiefdom linear thinking will once again lead the world to a period of 'dark ages'.

hedgeless_horseman's picture

Vee must pay reparations to zee Belgiums...again? 

Nein, nein, nein, nein...

SheepDog-One's picture

AH yes, finally we're at the point where the pirates are attacking each other and trying to steal each others loot!

Max Hunter's picture

Yeah.. That's the part of the movie i've been waiting for.. :)

Popo's picture

Unfortunately these scenes tend to be anti-climactic. There will likely be a pathetically small fine, accompanied by some theatrical complaining, pronouncements of "justice being served", and then more bonuses come Christmas.

MachoMan's picture

Not really...  the civil suits have serious teeth...  and with punitives (probably assured) being acceptable for due process reasons at anything less than 10x compensatory, you're looking at some butthole pleasures, not any of this wrist slap shit.  Many of these are gut locks...  the only question is how to proceed, stuff them into a class or let them all pile in separately.

slaughterer's picture

Gregg Lippmann was a very loud, Gordon-Gekko-esque guy for Deutsche Bank.  He made a lot of money for DB, and then DB got rid of him.   Probably with the worry that exactly this GS-like legal scenario would develop.  Gregg knew he was selling shitty instruments, there is no question about it.    Any look at Gregg's E-Mails will be more embarrassing than the look into Fabulous Fabrice's E-Mails, I guarantee.

equity_momo's picture

Clawbacks are coming ,  the shylocks want their pound of flesh.

idea_hamster's picture

Well, if I recall my Merchant of Venice correctly, Shylock fully disclosed all the terms of the deal before anyone signed anything.

I think here, it's more like Shylock wanting his own pound of flesh back.

hedgeless_horseman's picture

Shylock [and likely Deutsche Bank] fully disclosed all the terms of the deal before anyone signed anything.

But the idiot jurors never see it that way.

thunderchief's picture

What a bunch of Deutsche Bags!

Someone had to say it.

slaughterer's picture

"Perhaps a long DB Sub - short Dexia Sub CDS trade here would not be the worst one..."  Kinda late for this trade.  If I pay ZH more money, will you give me trade recommendations like this a few minutes before the general public?  

Silverhog's picture

This blame game is going to get a lot more fun shortly.

Founders Keeper's picture

Dexia vs Deutsche Bank

Allstate vs Morgan Stanley

Everybody vs BoA


Now things are getting serious. This is what I'm watching---banks eating banks---as indicator banks are losing control.

Act I of the Greatest Depression is coming to a close in the next month or two. Extend and pretend. Then Act II.

Act II, banks eating banks. The next down-leg in the markets. Nations scrambling for self-preservation. Political and financial upheaval. New wars likely but not certain. Act II likely to close with uncontrollable pockets of social upheaval.

Act III?  Note, the play is a tragedy.


snowball777's picture

Act II brings the protectionism. Act III is the war.

Founders Keeper's picture

Hi snowball777.

I throw "protectionism" under the self-preservation category.

You may be right about Act III.


MachoMan's picture

There may be an attempt to create a bank run to offset putback losses, etc...  essentially, it would mean TBTF are backstopped, with everyone else left to fend for themselves...  which means deposits, etc., all flow to the backstopped entities...  and the whole process could happen in a day or two...  (it more than started in 2008 before the FDIC limits were raised).

Seasmoke's picture

are people still paying their mortgages to banks that dont own them

uranian's picture

One trader, Greg Lippman, allegedly wrote, "DOESN'T THIS DEAL BLOW" in an e-mail to a colleague about an offering Dexia sank $23 million into.




dexia, bitchzz. funny how that name keeps popping up.

DrunkenMonkey's picture

Surely the real story here is that Dexia is staffed by idiots that don't check what they are buying ? Due diligence seems to be a lost art ..

Doyle Hargraves's picture

They took the ratings agencies word for it, like AAA treasuries, bitchez! /sarc

McUSA's picture

Funnily enough (or perhaps just right on for a change), GS is a pretty heavy holders of SKF --an ultra short financial fund, which in my humble McOpinion, will fare ok in the coming nuclear bonus purge "we're completely f#@$ed cause we hot ass traders / ibankers go to bars in groups and stand around drinking bud lights until one of us gets the balls to talk to a girl" shitstorm that's about to rain down on the financial stocks.  

joeburzell's picture

That's an interesting scenario.

Goldman shorts itself into oblivion.