A US federal judge has ruled that Nomura and Royal Bank of Scotland misled investors in mortgage-backed securities.
It is the first court verdict in a case that has lasted almost four years, the Financial Times reported.
The world’s biggest banks have paid more than US$20 billion so far to settle allegations of wrongdoing that arguably helped cause the global financial crisis in 2008.
Judge Denise Cote ruled Monday that the “offering documents did not correctly describe the mortgage loans”, as the securities had been constructed from loans to borrowers whose chance of repaying was much lower than advertised.
“The magnitude of falsity, conservatively measured, is enormous,” the judge said.
She ruled in favour of a government agency acting on behalf of Fannie Mae and Freddie Mac, whose vast portfolios of mortgage-backed securities plummeted in value during the crisis, triggering a massive bailout of the government-backed housing finance firms.
The Federal Housing Finance Agency (FHFA), conservator to Fannie and Freddie, sued 19 financial institutions in 2011.
Seventeen of the firms, ranging from JPMorgan Chase to Barclays, have agreed to pay more than US$20 billion to settle allegations that they missold the securities to Fannie and Freddie.
Nomura, Japan’s biggest investment bank, said it would appeal.
During the trial, the FHFA produced internal emails in which the banks’ employees poured scorn on the quality of the loans underpinning the securities.
“Danger Batman!” one Nomura employee wrote.
Another said loans included in a security were “crap”.
RBS was an underwriter on some of the securities in this case but is due to fight a separate case, with a much larger potential pricetag, in a separate court.
If Nomura and RBS had prevailed, it would have called into question the decisions by the other institutions to settle for record penalties, the newspaper said.
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