UBS, the underfire Swiss bank, yesterday became the first European bank to be sued by an investor over the sale of financial products that collapsed as a result of the meltdown in sub-prime mortgages in the United States.

HSH Nordbank, one of Germany’s biggest banks, is suing the largest Swiss bank over $500 million (£254 million) of collateralised debt obligations (CDOs) in what lawyers said was likely to be the first of many such cases in Europe.

HSH is looking to sue for losses of more than $200 million, sources said.

The legal action is likely to bring further embarrassment to Marcel Ospel, the UBS chairman, who is under intense pressure after revealing $18.4 billion in writedowns in the wake of the global financial crisis.

HSH accused UBS of putting risky American mortgages instead of low-risk assets into a CDO that it sold to the German bank in 2002. The bank has engaged Quinn Emanuel, a US law firm, to sue UBS for breaching its contractual obligations and fiduciary responsibilities.

“The world’s largest asset manager, UBS, appears to have condoned actions which benefited only itself,” Bernhard Blohm, an HSH official, said.

“After repeated attempts to discuss our concerns with senior management at UBS, we find that, with regret, we have no alternative but to commence legal proceedings.”

HSH plans to file a claim against UBS in a court in New York this month. Lawyers said that similar cases had been brought in the US but none so far by a European investor.

One lawyer who specialises in CDOs said that smaller banks “might be the next to have a go at this kind of suit”.

At a Treasury Select Committee hearing in December, some of the world’s largest investment banks acknowledged that they may have sold complex structured credit investments to investors who did not appreciate the risk.

However, lawyers said that HSH would struggle to convince a US court that it had been unaware of the nature of its investment. “[American] judges tend to take a ‘you’re all big boys’ stance,” a lawyer said. “There would have to be something almost amounting to fraud to get a judgment in the investor’s favour.”

HSH said that it had incurred significant losses on a $500 million investment in CDOs that were structured and sold by UBS. HSH claims that its investment in the CDOs involved a 70 per cent exposure to high-grade corporate debt and 30 per cent to the US property market.

Instead, the German bank alleges, UBS invested the CDOs far more heavily in the US sub-prime market.

HSH said: “Our claims against UBS will show that the manner in which the investments were sold to HSH Nordbank and UBS’s subsequent management of the assets were clearly contrary to our interests.”

UBS declined to comment yesterday. Three years ago Barclays Capital settled a claim from HSH filed at London’s high court alleging that Barclays mismanaged a CDO in which HSH had invested $150 million.

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