Stocks down as RBS faces US lawsuit

| September 5, 2011 | 0 Comments

Shares in Royal Bank of Scotland (RBS) lost 10% today after it emerged that the bank is being sued by America’s Federal Housing Finance Agency (FHFA) over the sale of residential mortgage-backed securities (RMBSs).

The FHFA was established in July 2008 when Fannie Mae and Freddie Mac had to be rescued which, at the time, represented one of the most major Government interventions in the financial markets in decades.

The Agency alleges RBS used false claims in sales documents to sell billions of dollars worth of mortgage investments to US Government agencies, which then turned sour when the housing market crashed.

Investors lost hundreds of billions of dollars when these types of investments went bad and resulted in the financial crisis in autumn 2008.

Seventeen other lenders are being sued including Barclays and HSBC, as well as Bank of America Corporation, Citigroup, Deutsche Bank, Goldman Sachs, Morgan Stanley and Societe Generale.

RBS is facing action over $30.4 billion (£18.7 billion) of sales, HSBC over $6.2 billion and Barclays $4.9 billion.

According to the reports, RBS and HSBC both ignored warnings from third party advisers before selling on the mortgage debt.

HSBC and Barclays have declined to comment on the lawsuit launched against them but RBS has said it would “vigorously” defend itself against the claims.

A spokesperson for RBS said: “We believe we have substantial and credible legal and factual defences to these claims and will defend them vigorously.”

RBS is 84% state-owned and the claim is a further blow to the taxpayer which bailed out the bank at the height of the financial crisis.

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