Interpreting Middle East Economic News and Analyzing Market Trends

Mashreq Bank sues ING over $43 million derivatives loss

The fallout from derivative losses continues…

 

ING Groep NV, the largest Dutch financial-services company, was sued in the U.S. by Dubai’s Mashreq Bank PSC (MASQ) over a $43 million investment loss tied to derivative securities.

Mashreq said in a complaint filed yesterday in Manhattan federal court that it invested conservatively with ING in 2005 and that in 2007 ING wrongly revised the investments to include collateralized debt obligations and other risky instruments.

The allegedly unauthorized revisions were “nothing more than trickery” and the bank “proceeded to pack” Mashreq’s account with hidden “toxic, illiquid ‘structured securities’ based on pools of loans cast off by investment banks,” according to court papers.

Mashreq is seeking a jury trial and damages, including punitive damages, and a return of profits it might have made without the derivative investments.

A spokesman for Amsterdam-based ING, Dana Ripley, said “as a matter of policy, we don’t comment on pending litigation.”

From Bloomberg.

 

Ultimately it was Mashreq Bank’s responsibility to know where and how its money was being invested.  The bank either knew about these investments and chose to ignore them since they were performing at the time or it had no clue how ING was handling its money.  Either way, Mashreq was careless and irresponsible.

 

ING, like many other banks before the financial crisis, had a lot of incentives to steer clients towards riskier investments.  After all, that’s what generated the higher fees so naturally, that’s where client money went.