25 November 2010
Abu Dhabi Commercial Bank initiates legal action in United States against Credit Suisse
Abu Dhabi, 25 November 2010 – Abu Dhabi Commercial Bank PJSC (ADCB) announces that it has filed a lawsuit against, among others, Credit Suisse and Standard & Poor’s in New York. The suit alleges, amongst other things, that Credit Suisse failed to disclose conflicts of interest and other material information, and provided misleading information, when structuring, marketing and selling an investment, known as Farmington, to ADCB in 2007, and that Standard & Poor’s provided inaccurate, investment-grade ratings to assets associated with the Farmington structure.
In 2005 and 2006, ADCB invested in a SIV known as Stanfield Victoria. During 2007, the SIV faced liquidity issues, and ADCB alleges that it was induced to enter into an emergency restructuring transaction, Farmington, based on false and misleading information. The transaction was sold to ADCB on the basis that it would help to preserve and protect the Bank’s original investment in Stanfield Victoria. Farmington, the restructured vehicle, appeared to have positive valuations and prospects and purportedly benefited from a high quality portfolio of assets rated by Standard & Poor’s. In addition, as a quid pro quo for the restructuring, ADCB was required to enter into an unfunded ‘credit default swap’ (CDS) to protect Credit Suisse’s loan exposure to Farmington, which Credit Suisse and the other defendants led ADCB to believe was relatively safe and carried minimal risk.
Ala’a Eraiqat, member of the Board and CEO of ADCB, said; “Over the past eighteen months we have worked hard to refocus ADCB’s strategy, and have made clear progress, as illustrated by our return to profit in the third quarter of 2010. We have also taken all steps necessary to recover the Bank’s exposures; this has included legal action. This latest action is brought with the aim of protecting the Bank from potential losses. Whilst we don’t anticipate a material impact on our earnings as a result of the disputed exposure, we believe, for the benefit of all our key stakeholders, it is appropriate to take action against parties who we believe misled ADCB.”
“The exposure which is the main subject of this suit is a legacy exposure and is unfunded exposure; which means that the Bank has not paid out any cash on this investment to date. On close examination, the investment was sold to the Bank in an unacceptable manner.”
In accordance with ADCB's adherence with international best practice, ADCB has fully provisioned its original funded exposure to Stanfield Victoria.
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