A U.S. real estate fund has sued HSBC Holdings alleging the British bank's U.S. mortgage trading operation took advantage of the credit crisis to profit at the expense of the fund, the Wall Street Journal reported.
In the lawsuit, Luminent Mortgage Capital , a San Francisco firm that invests in residential mortgage securities, says HSBC's New York office placed an improperly low valuation on nine subprime-mortgage bonds, which the fund's subsidiary had put up as collateral for loans.
According to the complaint, HSBC bought the bonds at a deep discount to their fair value, in at least one case employing an auction that included only one other bidder, the Journal reported in its European edition on Friday.
The Journal said the complaint was filed on Thursday in the U.S. District Court in New York. The total face value of the bonds in question was $24 million. An HSBC spokeswoman said the bank declined to comment, the Journal reported.
The dispute highlighted a problem that many banks and investors faced this summer as troubles in subprime mortgages triggered a broader credit crisis.
Market prices for many types of securities almost disappeared, forcing holders of the securities to come up with estimates of their value, the Journal said.
"Because those estimates often involve subjective criteria, they left ample room for manipulation and dispute," the newspaper said.
According to the complaint, Luminent's problems with HSBC stem from transactions made in late July and early August in which Luminent subsidiaries provided securities to the bank in return for loans.
HSBC could not be reached for comment.