Hanwha sues against UBS

By Kim Tae-jong

Hanwha Life Insurance has filed a $24 million damage suit against UBS, claiming that the largest banking group in Switzerland caused the insurer financial losses by providing “wrong” information about derivatives, the insurance firm said Thursday.

“We filed a lawsuit against UBS in March,” a Hanwha official said. “We can’t comment further on the lawsuit at the moment because of its sensitivity.”

The insurer, formerly known as Korea Life Insurance, invested $30 million in the credit- linked notes (CLNs) sold by UBS Group’s affiliate UBS AG in 2007.

A CLN is a form of credit derivative structured as security with an embedded credit default swap allowing the issuer to transfer a specific credit risk to investors. The issuer is not obligated to repay the debt, but investors can receive high interest returns.

Hanwha received interest from the investment until 2011 when UBS notified that it would sell its assets and eliminate the CLNs. Hanwha lost all its money invested in the CLNs due to UBS’s decision.

The firm later filed a lawsuit with a court in New York against UBS AG, UBS Limited and UBS Securities. UBS Limited was involved in issuing the CLNs and UBS Securities were the first buyers of the notes.

The life insurance firm argued that UBS overestimated the value of the CLNs while underestimating potential risks for investors and formed an investment portfolio that Hanwha claims was unfavorable to the firm.

“We’ve suffered huge financial losses due to the wrong recommendations for the financial product by UBS, and this is a legitimate demand to recover our investment,” the Hanwha official said.

Hanwha demanded that UBS return $24.34 million because it received $5.66 in interest incomes from the investment.

UBS is said to be firmly sticking to its original stance about this matter ㅡ it claims it only gave advisory service to the insurer for investment into the CLNs and it is the insurer that made the final decision on it.