Investments

RBS reaches $125 million mortgage bond settlement with California

Settlement covers “misrepresentations” of RMBS sold to state pension funds

Earlier this year, the Royal Bank of Scotland finally reached a $5.5 billion settlement with the Federal Housing Finance Agency over alleged violations of federal and state securities laws in connection with private-label residential mortgage-backed securities trusts purchased by Fannie Mae and Freddie Mac from 2005 to 2007.

But RBS’ legacy issues are not done and dusted yet.

Late last week, California Attorney General Xavier Becerra announced that California reached a $125 million settlement with RBS over mortgage bond issues that took place during that same time period.

According to Becerra’s office, the settlement covers “misrepresentations” about the underlying mortgages in a number of mortgage bonds sold to California’s public employee and teacher pension funds, CalPERS and CalSTRS.

Becerra’s office said that an investigation found that descriptions of the RMBS in question “failed to accurately disclose the true characteristics of many of the underlying mortgages” to investors.

The investigation also found that “due diligence to remove poor quality loans from the investments was not adequately performed.”

Becerra’s office said that RBS was aware of the misrepresentations but “failed to correct them.”

Those issues led to “millions” in losses to both CalPERS and CalSTRS.

“RBS decided to mislead California’s pension funds in order to line its own pockets – plain and simple,” Becerra said in a statement. “Today’s settlement returns to our pension funds, which hardworking Californians rely on upon retirement, money that RBS wrongfully took from them.”

In a statement provided to HousingWire, RBS Chief Executive Ross McEwan said that settling these “legacy” issues is highly important to the company.

“We have been very clear that putting our remaining legacy issues behind us is a key part of our strategy,” McEwan said.

“I am pleased that we have reached this settlement with the California State Attorney General in relation to RMBS issues which date back to 2004-2008,” McEwan continued. “Settling these issues is a stark reminder of the heavy price we continue to pay for the global ambitions pursued by the bank in the run up to the crisis.”

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