U.S. real estate fund Luminent Mortgage is suing HSBC Holdings, saying the UK Bank's U.S. mortgage trading unit placed an unjustifiably low valuation on subprime-mortgage bonds used by Luminent as collateral for loans, thereby profiting at its expense. According to the Wall Street Journal, HSBC used an artificially low valuation to buy the bonds at subpar, in at least one case using an auction that included only one other bidder. On Aug. 27, the firm alleges, HSBC contacted Luminent and said it had auctioned nine bonds, and emailed Luminent a spreadsheet with the auction prices. "HSBC, conveniently, had submitted the highest bid for all of the bonds." The face value of the bonds in question is $24 million. The suit highlights the problems investment firms and banks had putting a face value on thinly-traded securities, the market for which suddenly dried up in the August credit market crunch.
Commentary: Full Recovery from Credit Crisis May Take Time - Bernanke • Credit Crisis Yields LBO Arbitrage Opportunities • Just How Widespread is the Fallout from the Unfolding Credit Crisis
Stocks to watch: HBC, LUM
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