Royal Bank of Canada sued by REIT for margin calls on commercial mortgage-backed securities

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RBC uses coronavirus pandemic to seize large portfolio of assets at rock-bottom prices, New York real estate investment trust says

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Royal Bank of Canada is using the coronavirus pandemic to seize a large portfolio of assets at rock-bottom prices, says a New York real estate investment trust.

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In a lawsuit filed Wednesday in federal court in Manhattan, a subsidiary of AG Mortgage Investment Trust Inc. said it received margin calls from Canada’s largest lender on March 23. According to the complaint, RBC said the REIT’s commercial mortgage-backed securities have “significantly declined” in value due to the crisis, allowing the bank to demand additional cash or securities to meet requirements.

But Confidence says the calls are entirely subjective and don’t really reflect the true value of CMBS. While many other banks have agreed not to take legal action against mortgage real estate investment trusts, RBC refused – and planned to hold an auction on Wednesday that included US $ 11 million in trust assets. , according to the lawsuit.

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The bank’s auction “would not only significantly and detrimentally undervalue these securities to the detriment of applicants, but would also likely precipitate a chain reaction of other banks being forced to seize securities pledged by other mREITs. , all at prices informed by the discount sale that the defendants seek to retain, ”the trust said in the lawsuit.

The REIT is seeking a court order blocking the auction and preventing RBC from taking action against its assets “pending compliance with the parties’ agreements and current government guidelines and regulations designed to stabilize the economy.”

AG Mortgage Investment Trust announced Monday that it has failed to meet some margin calls and does not expect to be able to meet future margin calls with its current funding. Eric Hagen, analyst at KBW, said other companies are also likely to face margin calls “particularly given the difficult global environment for liquidity provision.”

AG Mortgage Investment Trust shares rose 27% to US $ 2.725 in New York on Wednesday after rising to 69% previously amid a large increase in REIT shares.

The case is AG MIT CMO v RBC (Barbados) Trading Corp. 20-cv-2547, US District Court, Southern District of New York.

Bloomberg.com


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