Nov. 25 (Bloomberg) -- Bank of America Corp., the largest U.S. bank by assets, was sued by BNP Paribas Mortgage Corp. and Deutsche Bank AG over hundreds of millions of dollars in losses they sustained by investing in asset-backed commercial paper.

BNP Paribas and Deutsche Bank today filed separate lawsuits in Manhattan federal court. They say they bought a total of $1.6 billion in asset-backed notes issued by a special-purpose entity known as Ocala Funding LLC, which provided funding for mortgage loans originated by Taylor, Bean & Whitaker Mortgage Corp. To reduce risk, they say they insisted that Ocala hold $1.6 billion in cash or mortgage loans as collateral to be deposited with Bank of America, the deal’s trustee.

Deutsche Bank “trusted that BofA, one of the nation’s largest and most well-known financial institutions, would perform the gatekeeper function reasonably and responsibly,” the Frankfurt-based bank says in its complaint. “In myriad ways, BofA failed to carry out its various duties designed to protect DB’s investment.”

Deutsche Bank, Germany’s biggest bank, said in its third- quarter earnings statement on Oct. 29 that it lost about 350 million euros ($527 million) in the deal. Edwina Frawley- Gangahar, a spokeswoman for Paris-based BNP Paribas, France’s largest bank, declined to comment on the bank’s losses.

Misled Banks

Ocala was a commercial-paper vehicle sponsored by now- bankrupt Taylor Bean, which was the 12th-largest U.S. home lender. Taylor Bean received funding from Colonial Bank, an Alabama lender under U.S. investigation. The commercial paper, or short-term IOUs, was backed by residential mortgages.

William Halldin, a spokesman for Charlotte, North Carolina- based Bank of America, denied wrongdoing.

“We share BNP and Deutsche Bank’s concern about the handling of funds by Taylor, Bean and Whitaker and Colonial Bank and have been actively pursuing recoveries in the Colonial and TBW bankruptcies on behalf of these and other investors in the Ocala facility,” he said in a statement.

“BNP and Deutsche Bank’s effort to hold Bank of America responsible, however, is misguided,” he added. “We fulfilled our contractual obligations in our limited administrative role with respect to the Ocala facility.”

BNP Paribas and Deutsche Bank claim that Bank of America improperly transferred billions of dollars out of Ocala accounts; didn’t track mortgages it was holding as security, as it promised to do; issued false statements about the amount of collateral it held; and took other steps that misled the two banks.

Sued Colonial

In August, Bank of America sued Colonial for more than $1 billion in cash and loans and won a court order barring the Alabama lender from selling or otherwise disposing of the funds.

Colonial, based in Orlando, Florida, said Aug. 7 that the U.S. Securities and Exchange Commission issued subpoenas for documents related to the bank’s accounting for loan loss reserves and its participation in the Troubled Asset Relief Program, or TARP.

Colonial is also under criminal investigation.

The lawsuits are Deutsche Bank v. Bank of America, 09-cv- 9784, and BNP Paribas v. Bank of America, 09-cv-9783, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: David Glovin in New York at dglovin@bloomberg.net.

Last Updated: November 25, 2009 14:23 EST