Journal vs. Financial Times on HSH-UBS Subprime Dispute

From time to time, there are marked disparities in how events are reported in the Wall Street Journal and the Financial Times. In the overwhelming majority of times, it’s the Journal’s reporting that’s deficient. Today’s sighting fits the classic pattern.

The difference in headlines says it all. The Journal’s is: “German Bank Blames UBS for Subprime Hit.” “Blame” is a loaded word for a headline; the innuendo is “Whining loser looks to find big name scapegoat.” The opening paragraphs stress the guilt-assignment theme:

HSH Nordbank AG said Swiss bank UBS AG sold it $500 million in securities tied to U.S. subprime mortgages that have since soured, in the latest case of a midtier German lender to be singed by the slump in the U.S. mortgage market.

HSH, which specializes in shipping finance, joins a growing number of investors around the world, including municipalities in the U.S. and Australia, that fault the banks that packaged and sold the investments.

Note that the deal in question was a 2002 CDO. That was long before the subprime market got frothy and speculative. Any deal done then would have had years of real estate bull market for its mortgage-holders to refinance. So the fact that a deal of that vintage has come a cropper is, to put it politely, an oddity.

The Financial Times, by contrast, “HSH to sue UBS over subprime losses,” gives a straightforward account:

HSH said Sunday it would file a suit this week to seek repayment of “hundreds of millions” of losses on a portfolio of collateralised debt obligations structured and managed by UBS….

HSH said it aimed to recover losses on North Street 2002-04, a $500m portfolio of collateralised debt obligations linked to the US residential mortgage market. The CDOs were structured, sold and managed by UBS.

The portfolio was bought in 2002 by Landesbank Schleswig-Holstein before it merged with Hamburgische Landesbank to create HSH. HSH said UBS did not act in line with obligations under the contract and changes were made in the portfolio.

“Our investment in the North Street programme should have been managed conservatively,” HSH said in a statement. “We will show that UBS acted wholly against our interests in its management of the investment.”

HSH said UBS did not respond to requests last year to settle out of court.

Given the details presented, it seems crystal clear from the FT’s account that HSH will file suit this week. You’d never learn that from the Journal, which instead said, “HSH, based in Hamburg and Kiel, said in its statement that it was considering legal action.” The Journal also neglected to mention the specific charges about violating the written agreement and changing the portfolio. Since both papers were apparently referring to the same official statement, the disparity is inexplicable.

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  1. Anonymous

    Actually, the difference is explainable. The Journal pursues ‘meta-narrative’ journalism while FT pursues reporting-based journalism. The Journal’s mission/strategy ground in a belief that readers need to understand the ‘bigger picture’ as crafted by The Journal (as opposed to, say, verifiable events). Like Joe Klein and Time magazine (see pattern of incidents in blogosphere), the question of mere accuracy and facts are less important than ‘getting the bigger story’.

    Now, many will assume that this approach of the Journal is wrong on its face. And while I believe it is very defective, it’s important to at least acknowledge that in a globalized world of markets and networks, perceptions determine actions more than facts.

    So, telling the metastory is a way of influencing what happens. This is a form of ‘activist journalism’. It runs many risks. But one of them crops up when a track record of inaccuracies and ‘spin’ undercut the credibility of the metanarrator.

    Again, see Joe Klein.

  2. Anonymous

    I have increasingly turned to the foreign financial press, especially FT, to get a handle on what’s going on in US finances.

    While the WSJ may like to think it’s providing a “meta-narrative,” to this reader it is nothing but misleading spin.

    Combine that with the spin provided in statements by the Fed, the banks, the monolines, and others, there is little of real value coming from US sources.

  3. Ginger Yellow

    “Note that the deal in question was a 2002 CDO. That was long before the subprime market got frothy and speculative. Any deal done then would have had years of real estate bull market for its mortgage-holders to refinance. So the fact that a deal of that vintage has come a cropper is, to put it politely, an oddity.”

    Depends on what you mean by oddity. It’s a managed CDO, so any maturing underlying CDOs would have been replaced by other (probably more recent) ones. There may or may not have been mismanagement in that substitution process.

    Also, it’s worth bearing in mind that HSH sued (and ultimately settled with) Barclays over a similar, but not subprime related, CDO blowup a few years back. The claims were almost identical, although the suit was filed in London, not New York. Google HSH and Corvus for details.

  4. Yves Smith


    Good point. I used to lament that the distinction between managed (what I would call “active) CDOs and the “passive” variety was typically lost in the discussion. And here I read past it, seeing “managed” as in “administering.”

    The Corvus detail is useful. For the benefit of US readers, while suing here can work much like mugging (even if you don’t have a great case, you can often be in a position to force your opponent to spend enough dough defending themselves that they are better off settling, even if they have good odds of winning), in the UK, the loser pays the winner’s legal fees, which is a very effective deterrent against weak or frivolous suits.

  5. Ginger Yellow

    I’m not saying it was frivolous, far from it. I wrote a feature on the Corvus case, and the underlyings and substitutions were horrific – aircraft leases substituted in after 9/11 but before downgrades, massive numbers of incestuous CDO squared tranches, etc. The EBRD also settled with Barclays, but it never reached court. I’m just saying it’s useful background, and the investments seem to have been made at the same time.

  6. Yves Smith

    Ginger Yellow.

    I’m not suggesting you were saying the suits were frivolous; apologies, for I may have indeed created that impression. That comment was in response to the Journal “blame” headline.

  7. Ginger Yellow

    OK, I’ve gone through the complaint now. There are some important differences between this and the Corvus case. Most significantly, in Corvus, HSH didn’t argue that Barclays had breached contract, whereas in this one HSH does argue that UBS did. Everything Barclays did was technically allowed by the docs, as far as I can remember. HSH argued instead that Barclays owed a duty of care, and also missold the bonds in the first place. HSH makes those arguments again with UBS, but also says that UBS failed to live up to commitments in the Reference Pool Side Agreement, and made substitutions that were explicitly prohibited by the eligibility criteria. Obviously I don’t know if those statements are true, but it’s a big difference.

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