Investment banks will be hit by a rash of high value court claims over “toxic” financial products later this year, a senior commercial lawyer has predicted.
Reynolds Porter Chamberlain’s head of financial disputes, Tom Hibbert, says investors who were sold products before the credit crunch are nearing the time limit for bringing legal proceedings. There will also be an increase in products reaching their maturity date this year, which means investors will have to account for their loss.
“The courts haven’t yet clarified whether the six year limitation runs from the sale of the product or the date at which the product’s value collapsed,” he says.
“Investors do not want to risk missing the chance for their case to be heard because they waited too long, so they will start court proceedings soon. The instinct of many institutional investors has been to seek to renegotiate or restructure transactions but many of those dialogues are coming to an end.
“Moreover, if investors approached the bank that sold them the product a year or more ago the bank might have been willing to restructure the product. Now that the synthetic collateralised debt obligations (CDOs) are nearing their expiry date and it is clear that they are more or less worthless the banks may be less willing to negotiate with investors, thus forcing them into litigation.”
According to Hibbert, the main types of product involved will be synthetic CDOs.
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