A rising tide of lawsuits between banks and clients

As the economy flounders in the doldrums, the number of legal actions increases.

As the economic downturn continues, a trend is emerging of banks suing clients for payments -- and of clients suing their banks in return.

Citi private bank and Merrill Lynch are both embroiled in lawsuits at the moment. J.P. Morgan won a London court ruling in a $19.1 million lawsuit against Kalbe Farma in late December over allegations that the company reneged on a currency-hedging agreement. The US bank is currently attempting to enforce that ruling in a Jakarta court.

Similarly, in Merrill's case, the story began by the firm seeking repayment in a fail-to-pay case. Last summer, Merrill Lynch bought shares for Singapore-based company Renaissance Capital Management Investment and its founder, Prem Ramchand Harjani. It bought 120 million shares of Triwira Insanlestari, a mining equipment company and coal distribution agent listed on the Jakarta Stock Exchange. The total deal was worth $14 million. Merrill Lynch bought the shares on the understanding that Prem would settle immediately in cash but, as he never did, the bank never released the shares, according to Singapore court documents. The value of the shares subsequently fell meaning there was a shortfall. Now, Merrill Lynch is seeking repayment of the amount it paid for the shares -- $11.7 million. Prem could not be reached for comment.

Merrill Lynch filed a suit, and won, in the Singapore High Court. The Singapore court issued an injunction on Prem's Singapore assets, which means he cannot move or sell assets such as Renaissance Capital of up to $11.7 million in Singapore.

Meanwhile, Prem lodged a suit in Jakarta, claiming $90 million in losses, saying that the bank had sold his shares without his knowledge. The bank counters that since he never paid for the shares, his consent was not needed -- and furthermore that the Indonesian courts do not have jurisdiction in this case. Merrill Lynch has asked the court to declare itself lacking jurisdiction to hear the case, and is expecting a ruling on the application in the next two to three weeks.

Elsewhere in the region, Singapore-based businessman Oei Hong Leong claims to have lost S$1 billion ($680 million) on foreign exchange and US Treasury bond transactions last year. He is now suing Citigroup's private banking arm in the High Court for negligence and misrepresentation, claiming that the bank gave him an inaccurate picture of his trading exposure, which caused him to take on more positions than he would have otherwise done.

"We have acted professionally in managing Mr Oei's account. We have comprehensive and robust systems and processes in place to handle client orders and transactions and for monitoring and control. Beyond this it would not be appropriate for us to comment further at this stage as the matter is now before the courts. It is therefore proper that our response to the allegations be found in court documents to be filed at the appropriate juncture. We fully intend to defend our position vigorously," said a spokesman for Citi's private bank.

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