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SCMP Reporter

Peregrine Fixed Income is being sued by German bank Commerzbank for US$40 million after Peregrine allegedly entered a foreign-exchange transaction in the knowledge that it would not be able to meet its side of the deal.

 The writ - the first to be filed since the collapse of the investment house - alleges Peregrine continued soliciting new business hours before its collapse, ignoring the risk to its counterparties.

 The writ centres on two crucial days in Peregrine's history - January 8 and January 9 this year.

 During these two days, Peregrine's negotiations with potential white knight - the Zurich Group - were terminated and the Government refused to bail Peregrine out, triggering its collapse.

 It had been proposed Zurich would invest $200 million in Peregrine in return for a 24.1 per cent stake to help recapitalise the ailing group.

 The swap transaction at the centre of the allegations involved Commerzbank providing Peregrine with 73.2 million deutschemarks (about HK$317.62 million) on January 8 and Peregrine repaying the same value for $40.1 million on January 9.

 Commerzbank alleges it paid Peregrine the 73 million marks but never received the $40 million in return.

 It is the timing of the transfer of the 73 million marks that lies at the centre of the case.

 On January 7 - a day before the transaction was agreed upon - Peregrine's shares were suspended from trading on news the terms and conditions of Zurich's investment in Peregrine were being renegotiated.

 After the discussions collapsed, Peregrine's board approached the Monetary Authority seeking a loan to keep the group afloat - which the writ states was rejected 'on or before 3 pm'.

 It then states Commerzbank's general manager spoke to Peregrine's treasurer John Lee on the telephone at about 3.30 pm, during which Mr Lee confirmed the Zurich deal had collapsed and that it would default on all payments in New York by midnight January 9.

 The writ states at the time the Zurich deal collapsed and the Hong Kong Monetary Authority refused to bail Peregrine out, the 73 million marks had not been transferred. The writ alleges Peregrine should have told Commerzbank earlier that talks with Zurich had broken down, the authority had failed to lend it money and the group faced collapse.

 On January 9, the Securities and Futures Commission moved to prevent Peregrine from conducting business or disposing of its assets - scuppering Commerzbank's ability to receive payment.

 'The defendant either before or no later than 3 pm Hong Kong time on January 9 knew through its directors that it would not be able to meet its financial obligations as and when they fell due,' the writ states.

 Commerzbank's legal representative Camille Jojo said: 'So much rested on the outcome of the Zurich talks that they must have been aware of the consequences when the talks went awry.

 'Should they have gone on soliciting new business given the substantial risk to counterparties?'  Mr Jojo said: 'After Zurich pulled out the chances of the Monetary Authority coming through with the money were slim to none - and slim was out of town.' 



Commerzbank claims defunct investment house ignored counterparty risk