RBS settles mortgage-backed securities suit for $275 million

Royal Bank of Scotland Group PLC settled for $275 million with investors who sued over the collapse of mortgage-backed securities, lawyers said in a court filing on Wednesday. More

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RBS settles mortgage-backed securities suit for $275 million

BLOOMBERG FILE PHOTO/SIMON DAWSON
ROYAL BANK OF SCOTLAND Group PLC has settled a lawsuit over its alleged failure to disclose that that the loans collateralizing its mortgage-backed securities weren't in accordance with applicable underwriting guidelines.
Posted 2/19/14

NEW YORK – Royal Bank of Scotland Group PLC settled for $275 million with investors who sued over the collapse of mortgage-backed securities, lawyers said in a court filing on Wednesday.

A class, or group, of plaintiffs including New Jersey Carpenters Health Fund and the Boilermaker Blacksmith Pension Trust, reached a cash settlement in principle with the bank, lawyers for both sides said in a Feb. 14 letter to U.S. District Judge Harold Baer Jr. in Manhattan.

The accord is the nation’s third largest mortgage-backed securities class-action settlement, plaintiffs’ lead counsel Joel Laitman of Cohen Milstein Sellers & Toll PLLC said in a statement.

The plaintiffs alleged in their 2008 suit that public offering documents used by Royal Bank of Scotland to sell Harborview mortgage-backed securities certificates failed to disclose that the loans collateralizing the certificates weren’t originated in accordance with applicable underwriting guidelines. By late 2008, virtually all the certificates were downgraded to junk bond status, according to the complaint.

“This settlement will give closure and monetary relief to investors who suffered losses in connection with these Harborview mortgage backed securities,” Steven Toll, managing partner for Cohen Milstein, said in a statement.

Lawyers for both parties said in their letter to the judge that they intend to submit a motion for preliminary approval once the accord has been documented. Baer must then approve the settlement.

The case is New Jersey Carpenters Vacation Fund et al v. The Royal Bank of Scotland Group, 08-Cv-5093, U.S. District Court, Southern District of New York (Manhattan).

Earlier on Wednesday, RBS announced it had sold its equity derivatives and structured products unit to BNP Paribas SA.

“The proposed transaction is in line with the strategic repositioning and de-risking of the markets division of the RBS Group as announced in 2013,” RBS said in a statement.

RBS said it’s exiting all structured products and equity derivatives in June, citing high capital costs and expenses. Wednesday’s sale is expected to transfer risk management of as much as 15 billion pounds ($25 billion) of liabilities, according to the Edinburgh-based lender. The sale price was “not material,” it said.

Increased regulatory scrutiny of structured products, which have faced criticism for being opaque and complex, is making the notes more expensive, forcing issuers to become either leaner and more efficient or retreat from the business. Banks create the notes by packaging debt with derivatives, typically options, to offer customized bets to retail investors while earning fees and raising money.

BNP Paribas is among lenders expanding its business for equity derivatives which are packaged into structured notes. The Paris-based firm signed an agreement to take on 12.5 billion euros of derivatives business from Credit Agricole SA in October.

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