RBS Subprime Exposure Subject of SEC Investigation

The Royal Bank of Scotland disclosed over the weekend that it’s involved in an ongoing series of inquiries by the Securities and Exchange Commission over its subprime mortgage exposure. The Sunday Times, a UK-based newspaper, first reported on the story. The Sunday Times report noted that the disclosures were “buried in the bank’s prospectus for its imminent £12 billion rights issue.”

The documents reveal that RBS subsidiaries have received requests for information from “various US governmental agencies and self-regulatory organisations” in relation to the sub-prime mortgage crisis. The documents add: “In particular, during March 2008 RBS was advised by the SEC that it had commenced a nonpublic, formal investigation relating to RBS’s US sub-prime securities exposure and US residential mortgage exposures. RBS and its subsidiaries are cooperating with these various requests for information and investigations.”

RBS’s latest capital raise heads to a shareholder vote this week; the bank is far from the latest across-the-pond financier to look for additional liquidity as it deals with the fallout from a U.S. mortgage market gone awry. The SEC — along with the FBI and other government agencies — has opened a slew of subprime-related investigations within the past 8 months. Sources suggested to HW that the RBS investigation was far from extraordinary in that regard. “Pretty much any financial firm of sufficient scale has come under scrutiny,” said one source, a fund manager tied to RBS who asked to remain unnamed. “I don’t think this sort of investigation is unique, as a result.” Last year, the SEC began probing investment banks regarding the pricing and mark-down strategies tied to subprime RMBS and related mortgage-backed bonds, over allegations that firms were more aggressively making margin calls based on pricing updates than they were marking down their own inventory. It’s not clear, however, what the focus of the latest formal investigation is likely to be. RBS officials have not commented to the press beyond the disclosure made in its offering prospectus.

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