The U.S. Supreme Court dealt a blow to Royal Bank of Scotland Group and Nomura Holdings Inc., refusing to derail federal government lawsuits that seek billions of dollars over the sale of risky mortgage-backed securities.
The justices today turned away an appeal by four banks, including units of RBS and Nomura, in a case stemming from the collapse of two credit unions that owned more than $1.7 billion in those securities.
High court review might have helped RBS fight off a separate suit by the Federal Housing Finance Agency over $32 billion in mortgage-backed securities. RBS now is likely to settle that case for at least $1.7 billion, according to Elliott Stein and Alison Williams, analysts with Bloomberg Intelligence. Nomura may settle a smaller FHFA lawsuit against it as well.
At issue was how much time federal agencies have to file lawsuits. The high court appeal centered on a provision, known as the Extender Statute, enacted as part of the 1989 law that bailed out the savings and loan industry. The Extender Statute gave government agencies longer to press at least some cases.
The banks contended the provision applies only to claims under state law and doesn't affect a separate law's three-year deadline for federal securities suits.
The Obama administration urged the Supreme Court not to hear the case, saying a federal appeals court was correct to let the National Credit Union Administration’s lawsuit against the banks go forward.
"There is no evidence that Congress intended the new, longer time limit it established for NCUA actions — enacted in the context of recovering from one of the nation’s worst financial crises — to be frustrated by the application of pre-existing shorter deadlines," U.S. Solicitor General Donald Verrilli argued.
The banks appealing in the case also included units of Wells Fargo & Co. and Novation Cos. The group had backing from three industry trade associations.
Fifteen banks, including Bank of America Corp. and JPMorgan Chase & Co., have already settled mortgage-backed securities pressed by FHFA, the agency that regulates Fannie Mae and Freddie Mac.
RBS and Nomura said in court papers that the government was trying to buy time for itself to extract more settlements.
"It is hardly surprising," the banks argued. "It has not finished targeting financial institutions with billions of dollars in potential exposure such that they have little choice but to settle in those jurisdictions that have adopted the government's position."
