US settlement fails to boost ADCB

Abu Dhabi Commercial Bank shares fell after it said a settlement of its legal action over losses linked to its pre-crisis subprime investments would have a 'limited' effect on its balance sheet.

Abu Dhabi Commercial Bank shares fell after it said a settlement in the United States of its legal action over losses linked to its pre-crisis subprime investments would have a "limited" effect on its balance sheet.

The capital's second-biggest lender sued the ratings agencies Standard & Poor's and Moody's Investors Services and banks including Morgan Stanley and BNY Mellon in 2008 over a US$10 million investment in a so-called "structured investment vehicle" known as Cheyne Finance.

The five-year legal battle ended on Wednesday with an out-of-court settlement, the bank said in a statement. Terms of the deal were not disclosed.

"ADCB is satisfied with the outcome of the settlement," it said. "The original investment had already been fully provisioned and receipt of the settlement proceeds will have a positive but relatively limited effect on ADCB's balance sheet."

But the bank's shares fell 1.07 per cent to Dh4.61 each after the announcement of the settlement. ADCB's shares are up 55 per cent year-to-date.

The Abu Dhabi Securities Exchange General Index fell 0.2 per cent to 3,278.22.

Between 2004 and 2007, Cheyne Finance pooled capital from buyers including ADCB to invest in bonds backed by subprime mortgages.

The bank said that the product would have been "virtually unmarketable" without the highest credit ratings given to it by Moody's and S&P.

The bursting of the subprime mortgage bubble inflicted severe damage on the US financial system, ultimately leading to the collapse of the investment bank Lehman Brothers in 2008 when interbank liquidity abruptly froze.

Mashreqbank this month sued ING Group, the biggest financial services firm in the Netherlands, over $43m in losses that were funnelled into subprime investments that the Dubai-based bank dubbed "illiquid roach motels".