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A lawsuit filed by South Korea-based Woori Bank against The Royal Bank of Scotland Group plc (RBS - Snapshot Report) was dismissed by a U.S. District judge in Manhattan. The lawsuit was related to Royal Bank’s sale of collateralized debt obligations (CDOs) supported by risky residential mortgage-backed securities (RMBS) to the latter prior to the 2008 financial crisis.

Woori had alleged that Royal Bank sold it nearly $80 million worth of CDOs, which were backed by the faulty RMBS through misleading statements. Further, it alleged that the latter manipulated the London Interbank Offered Rate (LIBOR), on which the returns on these debt obligations were based.

However, the District Judge found the supporting evidence furnished by Woori to be weak, and hence the verdict was ruled in favor of Royal Bank. The judge also mentioned that Royal Bank had made several revelations about the risks related to these securities and was not accountable for any defects in Woori's own appraisal about the dependability of its purchases.

However, the technical defects in the Royal Bank’s pleadings of its conduct have prompted lawyers representing Woori to proceed with further litigation against it. Woori Bank – formed after the 1997 Asian economic crisis– has bore the brunt of the subprime mortgage crisis to a great extent, losing nearly $1.5 billion in credit default swaps and CDOs. Woori has pending lawsuits against Citigroup Inc. (C - Analyst Report) and Bank of America Corporation’s (BAC - Analyst Report) Merrill Lynch over suspected losses on $95 million and $143 million of debt securities, respectively.

As for Royal Bank, the lawsuit dismissal brings some relief. The bank has been under tremendous pressure after incurring huge losses during the last financial meltdown. Moreover, its alleged role in LIBOR manipulation has made things worse. However, the British government has pitched in for the rescue effort by a majority stake buyout. We believe that this is likely to prove beneficial for Royal Bank in stabilizing its operations.

Royal Bank currently retains a Zacks #2 Rank, which translates into a short-term Buy rating.

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