Thursday, 11 February 2016
Last updated 15 hours ago
Jan 26 2012 | 1:22am ET
Commerzbank is poised to lose its second battle over profit certificates with an alternative investments firm.
A Frankfurt appeals court indicated that Eurohypo, which Commerz bought in 2007, isn’t likely to win its appeal of a lower court ruling that found Commerz on the hook for profit certificates it stopped payment on in 2009. That’s good news for hedge fund QVT Financial, which sued the bank and is now likely to win on certificates originally issued by Hypothekenbank in Essen, but also on certificates originally issued by Rheinische Hypothekenbank.
Commerz stopped making payments on the certificates after two Eurohypo trusts linked to them took a look. But QVT argued that the loss didn’t matter—because Commerz had pleaded to compensate the unit for losses.
“Profit certificate owners in these circumstances need at least as much protection as shareholders,” Associate Judge Klaus Maier said in a preliminary assessment. “They may even need more because they have no influence on contracts changing corporate structure which shareholders get to vote on.” Since profit certificates were not dealt with in the 2007 profit-transfer and domination agreement, the court will have to impose one.
“The real fortune hunter here is Commerzbank,” QVT lawyer Josef Broich said. “By illegally withholding payments in the securities, the lender pushed their trading pricing down and at the same time took advantage of by buying them back cheap.”
Commerz lost a similar appeal last month in a case filed by private equity firm Crown Ocean Capital.