RBS 2011 Annual Report Download - page 405

RBS Group 2011 403
To date, Group companies have been named as defendants in their
various roles as issuer, depositor and/or underwriter in a number of
claims in the United States that relate to the securitisation and securities
underwriting businesses. These cases include actions by individual
purchasers of securities and purported class action suits. Together, the
individual and class action cases involve the issuance of more than
US$83 billion of mortgage-backed securities (MBS) issued primarily from
2005 to 2007. Although the allegations vary by claim, in general, plaintiffs
in these actions claim that certain disclosures made in connection with
the relevant offerings contained materially false or misleading statements
and/or omissions regarding the underwriting standards pursuant to which
the mortgage loans underlying the securities were issued. Group
companies have been named as defendants in more than 30 lawsuits
brought by purchasers of MBS, including five purported class actions.
Among the lawsuits are six cases filed on 2 September 2011 by the US
Federal Housing Finance Agency (FHFA) as conservator for the Federal
National Mortgage Association ("Fannie Mae") and the Federal Home
Loan Mortgage Corporation ("Freddie Mac"). The primary FHFA lawsuit
pending in the federal court in Connecticut relates to approximately
US$32 billion of AAA rated MBS for which Group entities acted as
sponsor/depositor and/or lead underwriter or co-lead underwriter.
FHFA has also filed five separate lawsuits (against Ally Financial Group,
Countrywide Financial Corporation, JP Morgan, Morgan Stanley and
Nomura respectively) in which RBS Securities Inc. is named as a
defendant by virtue of the fact that it was an underwriter of some of the
securities at issue.
Other lawsuits against Group companies include two cases filed by the
National Credit Union Administration Board (on behalf of US Central
Federal Credit Union and Western Corporate Federal Credit Union) and
eight cases filed by the Federal Home Loan Banks of Boston, Chicago,
Indianapolis, Seattle and San Francisco.
The purported MBS class actions in which Group companies are
defendants include New Jersey Carpenters Vacation Fund et al. v. The
Royal Bank of Scotland plc et al.; New Jersey Carpenters Health Fund v.
Novastar Mortgage Inc. et al.; In re IndyMac Mortgage-Backed Securities
Litigation; Genesee County Employees’ Retirement System et al. v.
Thornburg Mortgage Securities Trust 2006-3, et al.; and Luther v.
Countrywide Financial Corp. et al. and related cases.
Certain other institutional investors have threatened to bring claims
against the Group in connection with various mortgage-related offerings.
The Group cannot predict with any certainty whether any of these
individual investors will pursue these threatened claims (or their
outcome), but expects that several may. If such claims are asserted and
were successful, the amounts involved may be material.
In many of these actions, the Group has or will have contractual claims to
indemnification from the issuers of the securities (where a Group
company is underwriter) and/or the underlying mortgage originator
(where a Group company is issuer). The amount and extent of any
recovery on an indemnification claim, however, is uncertain and subject
to a number of factors, including the ongoing creditworthiness of the
indemnifying party.
With respect to the current claims described above, the Group considers
that it has substantial and credible legal and factual defences to these
claims and will continue to defend them vigorously.
Madoff
In December 2010, Irving Picard, as trustee for the bankruptcy estates of
Bernard L. Madoff and Bernard L. Madoff Investment Securities LLC filed
aclaim against RBS N.V. for approximately US$271 million. This is a
clawback action similar to claims filed against six other institutions in
December 2010. RBS N.V. (or its subsidiaries) invested in Madoff funds
through feeder funds. The Trustee alleges that RBS N.V. received US$71
million in redemptions from the feeder funds and US$200 million from its
swap counterparties while RBS N.V. ‘knew or should have known of
Madoff’s possible fraud’. The Trustee alleges that those transfers were
preferences or fraudulent conveyances under the US bankruptcy code
and New York law and he asserts the purported right to claw them back
for the benefit of Madoff’s estate. A further claim, for US$21.8 million,
was filed in October 2011. The Group considers that it has substantial
and credible legal and factual defences to these claims and intends to
defend itself vigorously.
Unarranged overdraft charges
In the US, Citizens Financial Group, Inc (“Citizens”) in common with other
US banks, has been named as a defendant in a class action asserting
that Citizens charges excessive overdraft fees. The plaintiffs claim that
overdraft fees resulting from point of sale and automated teller machine
(ATM) transactions violate the duty of good faith implied in Citizens’
customer account agreement and constitute an unfair trade practice. The
Group considers that it has substantial and credible legal and factual
defences to these claims and will defend them vigorously.
London Interbank Offered Rate (LIBOR)
Certain members of the Group have been named as defendants in a
number of class actions and individual claims filed in the US with respect
to the setting of LIBOR. The complaints are substantially similar and
allege that certain members of the Group and other panel banks
individually and collectively violated US commodities and antitrust laws
and state common law by manipulating LIBOR and prices of LIBOR-
based derivatives in various markets through various means. The Group
considers that it has substantial and credible legal and factual defences
to these and prospective claims.