RBS 2013 Annual Report Download - page 477
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Notes on the consolidated accounts
475
Other securitisation and securities related litigation in the United States
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 pending
individual and class action cases involve the issuance of more than
US$67 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 remain as defendants in more than 40 lawsuits brought by
purchasers of MBS, including the purported class actions identified
below.
Among these MBS lawsuits are four 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 remains pending in the United States District Court for the District
of Connecticut, and it relates to approximately US$32 billion of MBS for
which Group entities acted as sponsor/depositor and/or lead underwriter
or co-lead underwriter. Of these approximately US$10.5 billion were
outstanding at 31 December 2013 with cumulative losses of
approximately US$0.9 billion (being the loss of principal value suffered by
security holders). On 30 September 2013, the Court denied the
defendants’ motion to dismiss FHFA’s amended complaint in this case.
Discovery is ongoing.
The other three FHFA lawsuits (against Ally Financial Group,
Countrywide Financial Corporation and Nomura) name RBS Securities
Inc. as a defendant by virtue of the fact that it was an underwriter of some
of the securities at issue. Two of these cases are part of a coordinated
proceeding in the United States District Court for the Southern District of
New York in which discovery is underway. The third case (the
Countrywide matter) is pending in the United States District Court for the
Central District of California. Two other FHFA lawsuits (against JP
Morgan and Morgan Stanley) in which RBS Securities Inc. was an
underwriter defendant have been settled without any contribution from
RBS Securities Inc.
Other MBS lawsuits against Group companies include three cases filed
by the National Credit Union Administration Board (on behalf of US
Central Federal Credit Union, Western Corporate Federal Credit Union,
Southwest Corporate Federal Credit Union, and Members United
Corporate Federal Credit Union) and six 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 Health Fund v. Novastar
Mortgage Inc. et al. and In re IndyMac Mortgage-Backed Securities
Litigation. A third MBS class action, New Jersey Carpenters Vacation
Fund et al. v. The Royal Bank of Scotland plc et al., has been settled in
principle for US$275 million subject to documentation and court approval.
There is a provision that fully covers the settlement amount. The case
relates to more than US$15 billion of the issued MBS that are the subject
of MBS claims pending against Group companies. The outcome in this
case should not be seen as indicative of how other MBS lawsuits may be
resolved.
RBS Securities Inc. was also a defendant in Luther v. Countrywide
Financial Corp. et al. and related class action cases (the “Luther
Litigation”). On 5 December 2013, the court granted final approval of a
US$500 million settlement of plaintiffs’ claims to be paid by Countrywide
without contribution from RBS Securities Inc. Several members of the
settlement class are appealing the court-approved settlement to the
United States Court of Appeals for the Ninth Circuit.
Certain other institutional investors have threatened to bring claims
against the Group in connection with various mortgage-related offerings.
The Group cannot predict 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.
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 and certain other benchmark interest rates. The
complaints are substantially similar and allege that certain members of
the Group and other panel banks individually and collectively violated
various federal laws, including the US commodities and antitrust laws,
and state statutory and common law, as well as contracts, by
manipulating LIBOR and prices of LIBOR-based derivatives in various
markets through various means.
Most of the USD LIBOR-related actions in which Group companies are
defendants, including all purported class actions relating to USD LIBOR,
have been transferred to a coordinated proceeding in the United States
District Court for the Southern District of New York. In the coordinated
proceeding, consolidated class action complaints were filed on behalf of
(1) exchange-based purchaser plaintiffs, (2) over-the-counter purchaser
plaintiffs, and (3) corporate debt purchaser plaintiffs. On 29 March 2013,
the Court dismissed plaintiffs' antitrust claims, claims under RICO
(Racketeer Influenced and Corrupt Organizations Act), and certain state
law claims, but declined to dismiss certain other claims. Discovery is
stayed. Over 35 other USD LIBOR-related actions involving RBS have
been stayed pending further order from the Court.