Japanese financial giant Nomura is facing a US$1 billion trial in the United States over soured mortgage securities.
It’s the first case to come to trial over allegations banks and finance companies packaged bad mortgages into securities that helped trigger the 2008 financial crisis, according to the Financial Times.
In a wave of 2011 lawsuits by the Federal Housing Finance Agency (FHFA), Nomura and other institutions were accused of misrepresenting the underlying mortgage loans.
When borrowers started to default on their mortgages en masse, the mortgage-backed securities plummeted in value.
The agency has received more than US$20 billion in settlements from 17 of the world’s biggest banks including JPMorgan Chase and Barclays.
Of the 19 institutions originally sued by the FHFA, only Nomura and Royal Bank of Scotland have refused to settle. Nomura and RBS deny any wrongdoing.
The FHFA oversees Fannie Mae and Freddie Mac, the government-backed housing finance companies that were bailed out in 2008 by the US government after their purchases of mortgage-backed securities, including some from Nomura, turned sour.
In a pre-trial filing, Nomura’s lawyers argued that the bank believed the mortgage-backed securities to be such a good investment that it invested in them itself.
They also argued that Fannie Mae and Freddie Mac did not rely on the guarantees in the underwriting documents by Nomura and other banks.
These arguments remain to be decided. The banks have generally argued that Fannie and Freddie were not unsophisticated investors and that they had enormous amounts of data on the mortgage market.
If it loses, Nomura would pay US$1 billion to $1.1 billion but it would receive back the securities which have an estimated value of about US$400 million.
– Contact us at [email protected]