Nomura, RBS ordered to pay $806 mn to housing finance agency

A New York court has ordered Japanese financial giant Nomura Holdings Inc and UK's Royal Bank of Scotland Plc (RBS) to pay a collective fine of $806 million to US state-owned mortgage firms over sale of toxic mortgage-backed securities that triggered the 2008 global financial crisis.

The fine came as an outcome of a lawsuit filed by the US Federal Housing Finance Agency (FHFA) in 2011 over misrepresented sale of securities before the financial crisis.

FHFA has been acting as the conservator of government-sponsored enterprises Fannie Mae and Freddie Mac since their takeover in 2008.

The order follows a judgment last Monday by New York district court judge Denise Cote in Manhattan following a non-jury bench trial in the case.

Following the global financial crisis, the FHFA commenced proceedings against several major financial institutions over damage inflicted due to the sale of defective mortgage securities to the government-owned mortgage companies.

FHFA has reached settlements to the tune of $17.9 billion with other financial institutions including US banking giants Bank of America Corp, JPMorgan Chase & Co and Goldman Sachs Group Inc.

Under the order, Freddie Mac will get $779.4 million while Fannie Mae will be paid $26.6 million. The mortgage bonds worth about $434 million to $479 million will be returned to the banks.

In a 361-page opinion and order Judge Denise Cote said that the banks sold defective residential mortgage-backed securities to Fannie Mae and Freddie Mac and in 184 of 672 sample cases, home values were inflated and appraisers didn't believe the figures they provided were correct.

''The offering documents did not correctly describe the mortgage loans. The magnitude of falsity, conservatively measured, is enormous,'' Cote said.

The judge ruled against Nomura, which sponsored $2 bn of securities sold to Fannie Mae and Freddie Mac. RBS underwrote four of the deals.

Nomura and RBS agreed to pay in exchange of seven certificates involved in the case, the FHFA said in an earlier filing, though they may contest the amount they are now ordered to pay.

Although RBS has been fined millions of dollars, Nomura has agreed to indemnify the bank, according to sources.

Nomura spokesman Jonathan Hodgkinson said that Nomura ''takes this situation very seriously and strongly disagrees with the outcome of the case,'' and would defend the case at the US court of appeals.

He said that losses by Fannie Mae and Freddie Mac resulted from an unprecedented decline in home prices.

In a statement Saturday, Nomura said, ''The company will review the judgment and will consider all options, including appeal.''

The judgment is expected to have insignificant impact on the company's consolidated performance, it said.

RBS has not commented on the court case.