Banks suing other banks are likely to become much more common as the litigation machine warms up its engines in the wake of the mortgage-led financial market crunch. The latest case in point: Deutsche Bank AG (DB) and money manager HBK Investments LP are named defendants in a lawsuit filed Monday by Buffalo, New York-based M&T Bank Corp. (MTB), according to a published report. The lawsuit involves alleged fraud involving an $82 million investment by M&T into collateralized debt obligations that have since imploded, according to a story in the Wall Street Journal. The complaint argues that Deutsche “withheld from the ratings agencies material information about the quality and default problems” tied to the CDOs it issued, the Journal said. A review of the complaint by Housing Wire shows that M&T is alleging that it would never have purchased the securities in question had they been downgraded by the major credit rating agencies that rated the deals, Standard & Poor’s Rating Services and Moody’s Investors Service. It’s a new legal angle, and one that sources have told HW is likely to become much more commonplace in the months ahead, as banks and other institutional investors look to recoup at least some of their losses tied to structured investments gone sour. A recent accord involving key credit rating agencies and New York attorney general Andrew Cuomo is fanning the flames of litigation, as well, some sources said. Under the agreement, announced on June 5, the rating agencies agreed to make changes to their ratings process in exchange for cooperating with the AG’s ongoing investigation into Wall Street issuers; Cuomo is investigating if investment banks withheld vital information from investors and due diligence providers alike, massaging the ratings of key MBS and CDO deals in order to obtain the best possible rating. Neither M&T or representatives from Deutsche have commented to the press on the pending litigation. Disclosure: The author held no positions in DB or MTB when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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