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Court Annuls Nomura, RBS Plea Against Mortgage Bond Case

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On Monday, the U.S. Supreme Court refrained from hearing the appeal filed by two of the world’s biggest banks — Nomura Holdings, Inc. and The Royal Bank of Scotland Group plc (RBS - Free Report) — to overturn a settlement agreed in 2015. Notably, the 2nd U.S. Circuit Court of Appeals in New York had rescinded the same appeal in September 2017. Per the settlement, the banks were ordered to pay $839 million for misrepresentation of documents in selling of mortgage-backed securities.

Notably, both banks were accused by the Federal Housing Finance Agency’s (FHFA) of providing fraudulent details regarding mortgages sold to the government-backed mortgage financiers, Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corp. (FMCC).

However, spokespersons of Nomura and RBS refrained from comments.


The FHFA has accused Japan-based Nomura, sponsor of the above-mentioned securities, and Royal Bank of Scotland, the underwriter, of providing it with misleading details about securities worth $2 billion. Both were found guilty in May 2015 by the U.S. District Judge, Denise Cote, in Manhattan after a non-jury trial and were directed to pay $806 million, including $26.6 million to Fannie Mae, and $779.4 million to Freddie Mac. Further, in September 2015, the banks were directed to pay an additional $33 million, over and above $806 million.

Many financial institutions had resorted to inappropriate, misleading, aggressive and fraudulent methods to boost the companies’ mortgage operations during the pre-crisis period which fueled the sub-prime mortgage crisis. Consequently, Freddie Mac and Fannie Mae reached the brink of bankruptcy and the government intervened to rescue these lenders.

In order to avoid such fiascos in the future, the regulators started implementing stringent restrictions. Consequently in 2011, the FHFA had sued 18 financial organizations, including Wall Street majors, like Goldman Sachs (GS - Free Report) and Bank of America (BAC - Free Report) , for selling faulty mortgage-backed securities to Freddie Mac and Fannie Mae that caused investors severe losses. FHFA has reached nearly $23 billion in settlements with several of these banks.


Banks across the globe have been facing increasing scrutiny for their business practices. Many of the firms have paid billions of dollars as fines and compensation to settle lawsuits and probes. A number of investors have lost their hard-earned money as a result of such business malpractices. Such settlements help reinstate investors’ confidence in law enforcement agencies. Moreover, it reduces the existing litigation burden of banks.

Nomura carries a Zacks Rank #3 (Hold), while Royal Bank of Scotland holds a Zacks Rank of 5 (Strong Sell), at present.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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