HSBC, Nomura lose bid to avoid U.S. agency's mortgage lawsuits

NEW YORK Thu Aug 28, 2014 2:32pm EDT

NEW YORK Aug 28 (Reuters) - A U.S. regulator can proceed with lawsuits accusing HSBC Holdings Plc and Nomura Holdings Inc of misleading Fannie Mae and Freddie Mac into buying mortgage-backed securities that later turned toxic, a federal judge ruled on Thursday.

The decision from U.S. District Judge Denise Cote in Manhattan clears the way for HSBC to face trial Sept. 29 in a case by the Federal Housing Finance Agency that the bank has estimated could expose it to $1.6 billion in liability.

FHFA launched 18 lawsuits in 2011 over about $200 billion in mortgage-backed securities. HSBC, Nomura and Royal Bank of Scotland Group Plc are the remaining banks being sued by the regulator.

Other banks have settled ahead of trial, enabling the FHFA to recover $17.3 billion. Goldman Sachs Group Inc became the latest to settle last Friday, agreeing to a deal the FHFA valued at $1.2 billion.

In 2012, Cote issued a key ruling in the litigation, rejecting an argument by UBS AG that the case against it was untimely.

The 2nd U.S. Circuit Court of Appeals in New York upheld Cote's decision in 2013. UBS later settled for $885 million, but the ruling's rationale was applied to the remaining cases.

In June, however, the U.S. Supreme Court issued a ruling in an environmental case, CTS v. Waldburger, which raised similar questions about the timing of lawsuits.

The decision prompted the remaining banks in the FHFA litigation to urge Cote to reconsider her ruling or alternatively allow them to immediately appeal.

But Cote on Thursday said "it is clear that CTS does not disturb that decision."

The judge's ruling affirmed her earlier finding that a law passed in 2008 that established the FHFA in the wake of the financial crisis extended the period of time the agency had to bring lawsuits.

Cote also rejected the banks' request to immediately appeal her 2012 ruling as "inappropriate," noting how soon the trials in the HSBC and Nomura cases are set to begin.

"The parties will soon be able to appeal this issue, together with all other issues, following a final judgment," she wrote. "The most efficient way to reach the ultimate termination of this litigation is to try these cases."

Representatives for HSBC and the FHFA declined comment. Representatives for Nomura and RBS, which is a defendant in the case against Nomura, did not immediately respond to requests for comment.

The case is Federal Housing Finance Agency v. HSBC North America Holdings Inc, U.S. District Court, Southern District of New York, No. 11-6189. (Reporting by Nate Raymond in New York; Editing by Noeleen Walder and Tom Brown)