UPDATE 1-Australian court rejects S&P, ABN Amro appeals on derivatives ruling

Fri Jun 6, 2014 1:42am EDT

Related Topics

* Investors sued ABN, S&P after losing $14.9 mln in derivatives

* Federal court in 2012 said S&P, ABN "deceived" investors

* Friday's ruling say ABN, S&P will each be liable for 100 pct of losses (Adds details about compensation, comment from the litigation funder IMF Bentham)

By Swati Pandey

SYDNEY, June 6 (Reuters) - Australia's federal court on Friday dismissed appeals by Standard & Poor's and ABN Amro after investors successfully sued the ratings company and the Dutch bank over credit derivatives that lost almost all their value in the run-up to the 2008 financial crisis.

The court also ordered the pair to completely compensate the investors for their losses, and not just be liable for 33 percent as decreed in the first ruling.

S&P and ABN Amro had both appealed after the Federal Court in November 2012 found they had "deceived" 12 local government councils that bought ABN Amro credit derivatives, saying they should never have been given triple-A ratings by S&P.

The case was the first time a rating agency had faced trial anywhere in the world over the complex financial products widely cited as one of the factors that triggered the crisis. In the original ruling, the 12 councils in New South Wales state were awarded a total of about A$30 million for losses and damages.

"The significance of this judgement cannot be overestimated," said Amanda Banton, partner with legal firm Piper Alderman which is representing the local councils.

"The implications for other claims currently in the court are enormous," she added.

S&P said it was disappointed with the ruling, but did not specify whether it would appeal again.

"We continue to believe that it is bad policy to enforce a legal duty against a party like S&P, which has no relationship with investors who use rating opinions, yet impose no responsibility on those investors to conduct their own due diligence," it said in a statement.

Calls and an email to ABN Amro out of normal business hours went unanswered. The bank was one of a number of Dutch lenders that were nationalised as part of a government bailout in the 2008 crisis.

John Walker, executive director at Bentham IMF, which is funding the claim, said S&P and ABN Amro could make another appeal by seeking leave to the High Court, but he said that was very rare.

In a separate case, a second Australian class action lawsuit against S&P was filed in April last year. Last December European institutional investors also sued Royal Bank of Scotland and S&P in Amsterdam for damages of up to $250 million suffered on sophisticated financial products.

On Friday, the Australian judges reviewing the appeals ruled that S&P and Amsterdam-based ABN Amro had misled the local councils that bought triple A-rated notes created by the bank called "constant proportion debt obligations".

The councils were assured by the Australian Local Government Financial Services, an investment manager which sold the so-called "Rembrandt" notes arranged by ABN Amro in late 2006, that they had a less than 1 percent chance of defaulting. Within six months, they had done just that and the councils lost A$16 million ($14.89 million), or 90 percent of the funds they had invested.

"S&P's rating of the Rembrandt notes was unreasonable, unjustified and misleading and ABN Amro knew that to be so," the judges said on Friday in a 513-page ruling. ($1 = 1.0743 Australian Dollars) (Reporting by Swati Pandey; Editing by Kenneth Maxwell and Miral Fahmy)

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