RBS 2014 Annual Report Download - page 105

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RBS – Interim Results 2015
Notes
16. Litigation, investigations and reviews (continued)
The other remaining FHFA lawsuit that involves RBS relates to MBS issued by Nomura Holding America Inc.
(Nomura) and subsidiaries, and is now the subject of an appeal. On 11 May 2015, following a trial, the
United States District Court for the Southern District of New York issued a written decision in favour of FHFA
on its claims against Nomura and RBS Securities Inc., finding, as relevant to RBS, that the offering
documents for four Nomura-issued MBS for which RBS Securities Inc. served as an underwriter, relating to
US$1.4 billion in original principal balance, contained materially misleading statements about the mortgage
loans that backed the securitisations, in violation of the Securities Act and Virginia securities law. RBS
Securities Inc. estimates that its net exposure under the Court’s judgment of 15 May 2015 is approximately
US$350 million, which is the difference between the amount of the judgment against RBS Securities Inc.
(US$636 million) and the current estimated market value of the four MBS that FHFA would return to RBS
Securities Inc. pursuant to the judgment. The Court has stayed the judgment pending the result of the appeal
that the defendants are taking to the United States Court of Appeals for the Second Circuit, though post-
judgment interest on the judgment amount will accrue while the appeal is pending. RBS Securities Inc.
intends to pursue a contractual claim for indemnification against Nomura with respect to any losses it suffers
as a result of this matter.
The National Credit Union Administration Board (NCUA) is litigating three MBS cases against RBS
companies (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). The
original principal balance of the MBS at issue in the NCUA cases is US$3.56 billion.
Other remaining MBS lawsuits against RBS companies include, among others, cases filed by the Federal
Home Loan Banks of Boston, Chicago, Seattle and San Francisco, and a case filed by the Commonwealth of
Virginia on behalf of the Virginia Retirement System.
RBS companies are also defendants in a purported MBS class action entitled New Jersey Carpenters Health
Fund v. Novastar Mortgage Inc. et al., which remains pending in the United States District Court for the
Southern District of New York. Another MBS class action (Luther v. Countrywide Financial Corp. et al. and
related class action cases) was settled in 2013 without any contribution from RBS, but 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 claims on behalf of public and private institutional investors have been threatened against RBS
in connection with various mortgage-related offerings. RBS cannot predict whether any of these threatened
claims will be pursued, but expects that several may.
RBS has made provisions to date totalling £2,080 million for all MBS related litigation claims and
investigations (including those specifically described in this note), including £506 million for the six months
ending 30 June 2015.
In many of the securitisation and securities related cases in the US, RBS has or will have contractual claims
to indemnification from the issuers of the securities (where an RBS company is underwriter) and/or the
underlying mortgage originator (where an RBS 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 a number of whom are or may be insolvent.