Last week’s settlement between Goldman Sachs and several regulators, including the U.S. Department of Justice, for $5 billion to resolve claims of RMBS fraud has fueled speculation among analysts that the Royal Bank of Scotland (RBS) will reach a settlement in the next few weeks to resolve claims.
The British-based RBS is one of 18 financial institutions sued by the Federal Housing Finance Agency (FHFA) in 2011 to recoup U.S. taxpayer costs following the government's $187.5 billion bailout of Fannie Mae and Freddie Mac in 2008. The RBS suit is the last of 18 cases not resolved either through trial or settlement. Out of the 18 lenders sued, 16 of them settled for a combined total of about $17 billion. Nomura Holdings took FHFA to trial in March for a case in which RBS was also a defendant. After a two-month bench trial, Nomura was found liable for deceiving the GSEs in the sale of $2 billion worth of mortgage-backed securities and was ordered to pay $839 million in penalties. Nomura has appealed the verdict.
FHFA sued RBS in the U.S. District Court in Connecticut over the selling of approximately $32 billion worth of faulty mortgage-backed securities to Fannie Mae and Freddie Mac before the crisis. FHFA claims that the GSEs relied on false and misleading statements made by RBS when purchasing the mortgage-backed securities, causing the Enterprises to suffer massive losses. Reports surfaced in early July that the FHFA, conservator of Fannie Mae and Freddie Mac since 2008, is seeking up to $13 billion in damages from RBS in the lawsuit. The bank had set aside about $3 billion for a possible settlement.
RBS did not immediately respond to a request for comment on whether or not there will be a settlement or if the bank plans to take FHFA to trial. Analysts believe regulators would like to have the case resolved before the presidential race heats up in the coming months.
Last year, RBS attempted to have the lawsuit dismissed on the grounds that the FHFA waited too long to sue. In August 2015, however, a federal judge denied RBS’ attempt to have the suit thrown out.
RBS has settled with the FHFA before over mortgage-backed securities. In June 2014, RBS agreed to pay $99.5 million to settle a separate FHFA suit claiming that the bank sold more than $2 billion worth of faulty mortgage-backed securities to Fannie Mae and Freddie Mac between 2005 and 2007.
Several large financial institutions have settled with the U.S. Justice Department and state regulatory agencies to resolve claims of mortgage-backed securities fraud: Citigroup for $7 billion in July 2014, JPMorgan Chase for a then-record $13 billion in November 2013, and Bank of America for a record $16.65 billion in August 2014.