Articles Posted in Royal Bank of Scotland

In a unanimous ruling, a U.S. Court of Appeals for the 2nd Circuit panel has turned down an appeal by Royal Bank of Scotland Group Plc (RBS) and Nomura Holdings Inc. (NMR) to overturn an order mandating that they pay $839M for the false statements, including misrepresentations, that they are accused of making while selling mortgage-backed securities to Freddie Mac (FMCC) and Fannie Mae (FNMA). The MBS fraud award was issued against the two banks in the Federal Housing Finance Agency’s securities lawsuit. FHFA has been the conservator for Fannie and Freddie ever since the US government took them over after the housing market failed in 2008.

Nomura sponsored $2B of securities that were sold to the mortgage companies. RBS was the underwriter on four of the deals. In a filing submitted to US securities regulators last month, RBS said it is looking to be indemnified by Nomura for the losses.

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In the UK, the US government is suing several banks over Libor rigging allegations in High Court. The defendants in the London Interbank Offered Rate (Libor) manipulation lawsuit include Deutsche Bank (DB), Barclays (BARC), Royal Bank of Scotland (RBS), Lloyds Banking Group, UBS (UBS), Rabobank (RABO), and several other banks, in addition to the British Bankers Association.

According to the Federal Deposit Insurance Corporation’s claim, the banks would engage in lowballing by turning in estimates that were artificially low when participating in the daily process to set the Libor rate. The US agency said that it is suing for 39 US banks, which were once collectively valued at over $400M, that failed after they depended on the US dollar denominated-Libor variant for derivative and other transactions. FDIC contends that the inaccurate figures submitted by the European banks caused the US banks to sustain massive losses.

It believes that if the Libor rate had been set honestly, the benchmark’s rate would would have been higher and these banks would have achieved higher prices and larger returns on different mortgages, loans, options, swaps, and other Libor-tied agreements. Instead, the plaintiffs allegedly colluded together to keep borrowing rates down to make it appear as if the banks were in more robust financial health than what was actual. The FDIC argued that the joint efforts of the banks and the British Bankers Association resulted in the “sustained and material suppression of Libor” from August 2007 through at least 2009.

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This week, Royal Bank of Scotland Group PLC (RBS) has agreed to pay the Federal Housing Finance Agency $5.5B to resolve the latter’s investigation into the UK government-controlled bank’s sale of toxic mortgage-backed securities to mortgage giants Freddie Mac and Fannie Mae leading up to the 2008 financial crisis. RBS has come under fire for the way it packaged and sold subprime mortgages. The violations allegedly involved private-label residential mortgage-backed securities (PLS) trusts that were purchased between 2005 and 2007.

RBS will pay Freddie Mac about $4.5B and approximately $975M to Fannie Mae to resolve this RMBS fraud case. However, the bank is eligible for a $754M reimbursement according to certain indemnification agreements.

RBS had previously reached, for $1.1B, separate settlements over similar MBS fraud claims that the US National Credit Union Administration had brought in Kansas and California. It remains under investigation by the US Department of Justice and several US agencies who are conducting their own mortgage-backed securities fraud probes.

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$165M Class Action Settlement Reached in MBS Fraud Case Involving NovaStar Securities
Royal Bank of Scotland Group Plc (RBS), Wells Fargo & Co. (WFC), and Deutsche Bank AG (DB) have reached a $165M with investors in their class action mortgage-backed securities case involving underwriting for NovaStar Mortgage Inc., a former subprime lender. The lead plaintiff in the case is the New Jersey Carpenters Health Fund.

NovaStar, which filed for bankruptcy last year, had specialized in low quality residential mortgages. Many of these were bundled into risky securities that were issued prior to the 2008 financial crisis. The class action settlement resolves claims contending that the offering documents put together by the banks misled investors into thinking that the loans underlying about $7.55B of NovaStar MBSs were safe and had been underwritten properly.

A district court judge must still approve the settlement. Meantime, despite the resolution, the banks continue to deny wrongdoing.
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In London, six traders have pleaded not guilty to charges accusing them of trying to rig Euribor, which is the Brussels-based equivalent of the London Interbank Offered Rate (Libor). Euribor is key in establishing the rates on financial contracts, loans, and other financial products around the world.

The defendants include former Deutsche Bank (DB) trader Christian Bittar, current Deutsche trader Achim Kraemer, and former Barclays (BARC) traders Philippe Moryoussef, Colin Bermingham, Carlo Palombo, and Sisse Bohart. They are charged with one count of conspiracy to defraud through the making or obtaining of false or misleading Euribor rates in order allegedly enhance trading profits.

The criminal charges are related to a probe by the Serious Fraud Office. Five other traders from Deutsche Bank and Societe Generale were previously charged.

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Another Jury Finds Ex-Jefferies Group Trader Guilty of RMBS Fraud
A federal jury has convicted Jesse Litvak of one count of securities fraud. The ex-Jefferies Group LLC (JEF) bond trader was tried again on allegations that he bilked customers of $2M when he inflated the prices that he claimed he paid for residential mortgage-backed securities. As a result of his claims, professional investment managers and hedge funds paid too much for bonds.

Another jury had found Litvak guilty of fraud two years ago. However, in 20015, a federal appellate court dismissed parts of the RMBS fraud case against him. The securities fraud charges were retried before a new jury.

During this trial, prosecutors claimed that Litvak’s customers had totally relied on him for bond pricing information. His legal team, however, argued that his customers were sophisticated investors and did what they wanted regardless of his advice.

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 Nomura Home Equity Loan, Inc. and Nomura Asset Acceptance Corporation have agreed to jointly pay over $3M to settle allegations that they engaged in the sale of faulty residential mortgage-backed securities (RMBS) to the Western Corporate Federal Credit Union and the U.S. Central Federal Credit Union. The National Credit Union Administration brought the RMBS fraud case on behalf of the  two corporate credit unions.
 
It was in 2011 that the NCUA Board, while serving as liquidating agent for both financial institutions, brought the claims against the Nomura entities. The RMBS lawsuit was brought in federal district courts in Kansas and California.
The $3M settlement dismisses NCUA’s pending cases against the two firms. By settling, neither firm is denying or admitting to the alleged wrongdoing.

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Royal Bank of Scotland (RBS) subsidiary RBS Securities Inc. will pay the state of Connecticut $120M to settle allegations related to its dealings with mortgage-backed securities leading up to the 2008 financial crisis. According to state officials, RBS played a part in the crisis when it neglected to do the proper due diligence around certain tools for mortgage-backed investments. They accused the subsidiary of unethical and dishonest behavior, as well as of making false statements. 
  
They contend that RBS, which was one of the largest underwriters of residential mortgage-backed securities, did not make sure that the information it offered about RMBS deals was accurate. Connecticut Attorney General George Jepsen said that he and the state’s Department of Banking worked together in investigating this matter. 

RBS doesn’t securitize newly originated RMBSs anymore. It was, however, the lead underwriter for approximately 250 residential mortgage-backed securities between ’05 and ’08. Part of its job was to perform the due diligence on mortgage loans used for collateral. However, Connecticut claims that RBS’s due diligence was “inadequate,” causing “omissions and misstatements” to be made to the public and investors.  They even contend that in certain instance, RBS rated certain loans that
 had already been lower rated by third-party vendors with higher-grade ratings. 

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Royal Bank of Scotland Group (RBS) will settle two civil residential mortgage-backed securities lawsuits for $1.1B.  The payment will go to the National Credit Union Administration (NCUA) and resolves claims accusing the bank of selling faulty MBSs to two corporate credit unions, causing their failure.  The federal actions were brought in California and Kansas, respectively. This is one of the largest settlements reached in mortgage-backed securities cases brought against banks.
 
The allegedly toxic RMBSs were sold to Western Corporate Federal Credit Union and the Central Federal Credit Union. By settling, however, RBS is not admitting fault.
 
It was just last year that Royal Bank of Scotland agreed to pay $129.6M to NCUA to resolve claims over its sale of mortgage-backed securities to Members United Corporate Federal Credit Union and Southwest Corporate Federal Credit Union. Both are now defunct, too. 

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U.K.’s Financial Conduct Authority is barring Paul White, an ex-Royal Bank of Scotland (RBS) trader, for misconduct involving the rigging of the London interbank offered rate. The FCA said that White behaved with recknlessness and was not in integrity when he would submit information about Libor related to the Swiss frank and the Japanese yen.

According to the British regulator, from 5/07 to 11/10, White improperly considered requests that came from derivatives traders at two banks when issuing Libor submissions. If any of the information he turned in wasn’t been accurate, this could have changed the rate for Libor in a manner benefitting White and others. In a news release, the FCA said that White had a duty to make sure his submissions were correct and not influenced by his own financial interests or the interests of others.

The regulator provided a transcript that included electronic messages between a broker at another bank and White. The messages indicated that they worked together to rig Libor.

White was the recipient of 68 communications from RBS derivatives traders for Libor submissions. In the exchanges, said the FCA, the traders sought to help their trading positions. There was also a Swiss franc trader that purportedly made such requests verbally for twenty months. White also received requests from a yen derivatives trader who did not work at the firm.

The FCA’s final notice states that White claims that although he took into account trading positions when issuing Libor submissions, his entries were always “correct” and within a range that was acceptable according Libor’s definition. White claimed that he engaged in seemingly improper communications only to “appease.” FCA, however, rejects White’s account of what happened. Yet despite imposing an industry bar against him, the regulator waived what could have been a $354,000 fine because White is undergoing financial difficulties.

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