Investments

Court of Appeals denies Nomura, RBS attempt to duck $839 million MBS settlement

Upholds 2015 verdict covering crisis-era mortgage bonds

A federal court of appeals handed Nomura Holdings and The Royal Bank of Scotland a defeat this week, denying the companies’ bid to avoid a $839 million settlement over the sale of mortgage-backed securities to Fannie Mae and Freddie Mac in the run-up to the housing crisis.

According to a Reuters report, the Court of Appeals for the 2nd Circuit ruled unanimously to reject the companies’ appeal, which stemmed from a 2015 verdict that ordered the companies to pay $806 million including $26.6 million to Fannie Mae and $779.4 million to Freddie Mac.

From Reuters:

The two banks had challenged the 2015 award on multiple grounds, including that the loss of the securities’ value was largely caused not by any false statements, but by the broader financial crisis in 2008.

A unanimous panel of the U.S. Court of Appeals for the 2nd Circuit in New York, however, rejected that and other arguments.

“Defendants may not hide behind a market downturn that is in part their own making simply because their conduct was a relatively small part of the problem,” Circuit Judge Wesley wrote on behalf of the panel.

The original fine was part of the Federal Housing Finance Agency’s efforts to recoup money the government-sponsored enterprises lost in the wake of the housing crisis.

The Nomura and RBS case was the first to come to trial of the 18 lawsuits filed by the FHFA back in 2011. The lawsuits were an attempt to recover some of the losses on approximately $200 billion in mortgage bonds the GSEs bought in the run-up to the crisis.

The FHFA claimed that the companies allegedly lied about the quality of the underlying mortgages when selling them to Fannie and Freddie.

While Nomura and RBS fought back, some of the country’s biggest banks chose to settle with the federal government over toxic mortgage bonds, including Bank of America, which settled with the Department of Justice for $16.65 billion, JPMorgan Chase, which settled for $13 billion, and Citigroup, which settled for $7 billion.

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