| NEW YORK, March 19
NEW YORK, March 19 Royal Bank of Scotland Group
Plc must face a U.S. lawsuit seeking to force it to
cover losses suffered by a bond insurer on a $1.15 billion
securities offering backed by allegedly defective and
fraudulent home loans.
U.S. District Judge John Koeltl in Manhattan said RBS must
defend itself against claims by Assured Guaranty Ltd
that the taxpayer-owned bank committed fraud, and aided and
abetted fraud, by inducing it to insure part of a 2007
securitization, and expose it to more than $100 million of
The allegations "raise a strong inference that RBS had a
specific motive and intent to deceive the plaintiff in order to
obtain the policy for a specific transaction," Koeltl said.
Koeltl issued his ruling orally at a March 17 hearing, for
which Reuters obtained a transcript that has not been posted to
the court's public website.
Lawyers representing RBS and Assured Guaranty declined to
comment. Britain's government owns 81 percent of RBS.
The case is one of many accusing banks that packaged
mortgages into securities prior to the 2008 financial crisis of
deceiving investors and insurers about underwriting quality,
resulting in losses when market conditions deteriorated.
It concerned an offering called Southview Home Loan Trust
2007-WMC1, which involved more than 4,900 home loans made by WMC
Mortgage Corp, a now defunct subprime lending unit of General
Assured said it would not have agreed to insure $291 million
of certificates issued through that offering, had RBS not
concealed how the offering ignored underwriting guidelines and
lent money without regard to borrowers' ability to repay.
Total losses on the $1.15 billion offering had reached $454
million, with 61 percent of the remaining loans in default, by
June 2013, Assured said.
In his ruling, Koeltl said it was too soon to decide whether
Assured had relied unreasonably on data and documents it did
review, citing industry practices, the amount of work needed for
an independent assessment, and "the time frame within which
Assured was requested to issue the policy."
Koeltl dismissed a third claim by Assured, in which it said
that New York state insurance law entitled it to recoup payments
it makes under its policy without resorting to "rescission."
Assured last year announced settlements of similar lawsuits
it had brought against Flagstar Bancorp Inc, JPMorgan
Chase & Co and UBS AG.
The case is Assured Guaranty Municipal Corp. v. RBS
Securities Inc et al, U.S. District Court, Southern District of
New York, No. 13-02019.
(Reporting by Jonathan Stempel in New York; Additional
reporting by Nate Raymond; Editing by Tom Brown)