QVT Funds File Lawsuit Against Commerzbank's Eurohypo AG for Breach of Contract and Fiduciary Duties Related to Eurohypo's Delaware Trusts

Approximately $1.2 Billion of Securities Affected by Commerzbank Group Actions

Oct 07, 2010, 03:05 ET from QVT Funds

NEW YORK, Oct. 7 /PRNewswire/ -- Funds (the "QVT Funds") managed by QVT Financial LP ("QVT"), filed a lawsuit today in the Court of Chancery of the State of Delaware against Eurohypo AG and two of its Delaware subsidiaries ("Eurohypo").  Eurohypo is wholly owned by the Commerzbank group ("Commerzbank").  The action was filed on behalf of the two Delaware trusts (the "Trusts") established by Eurohypo that had issued profit-dependent securities (the "Trust Securities") held by the QVT Funds.  

The Delaware complaint alleges the following:

  • Eurohypo caused the Trusts to raise approximately $1.2 billion of profit dependent securities in the capital markets, thus communicating that Eurohypo would remain a profit-maximizing entity and creating such an expectation for the holders of the Trust Securities.
  • In June 2007, Eurohypo entered into a German law domination agreement with Commerzbank, by which it contracted away its power to remain a profit-maximizing entity.
  • By contracting away power to maximize profits and by failing to make payments in 2010, Eurohypo breached its contractual and fiduciary duties to the Trusts and to the holders of the Trust Securities.
  • Furthermore, as payments are due on participation securities issued by Eurohypo AG, Eurohypo is contractually required to make payments to the Trusts and on the Trust Securities.

The QVT Funds seek damages on behalf of the Trusts of approximately $68 million as well as a declaration from the court that the missing payments are immediately due and payable to the Trust Security holders.   The QVT Funds own approximately $226 million nominal amount of the Trust Securities as well as participation securities issued directly by Eurohypo AG.  Commerzbank has stated that if Eurohypo is forced to make payments on profit dependent securities, such securities may no longer qualify as Bank Regulatory Equity for Commerzbank.  

QVT has spent the past nine months attempting to engage Eurohypo and Commerzbank in a constructive dialogue to address the payment failures on these instruments.  QVT is disappointed that Commerzbank refuses to engage in such dialogue.  In August of 2010, an affiliate of the QVT Funds brought an action against Eurohypo in Germany to secure payment on the participation securities and today the QVT Funds initiated the action in Delaware.

Media Contacts (US)

Andy Brimmer / Steve Frankel / Ed Trissel

Joele Frank, Wilkinson Brimmer Katcher


Media Contacts (Germany)

Kornelia Spodzieja / Thilo Neupert / Elke Sirowatka

Charles Barker Corporate Communications GmbH