HSBC Holdings Plc and Nomura Holdings Inc. lost a bid to block claims by a U.S. regulator the banks say were brought too late, clearing the way for a trial of HSBC over questionable mortgage practices.
U.S. District Judge Denise Cote today reaffirmed earlier rulings that claims by the Federal Housing Finance Agency, which sued the banks over residential mortgage-backed securities sold to Fannie Mae and Freddie Mac, aren’t barred by laws limiting the time in which suits must be filed.
The ruling allows the FHFA to go forward with a trial next month in which HSBC could be found liable for as much as $1.6 billion, according to the bank. It also puts added pressure on HSBC to settle. Nomura’s trial is scheduled for next year.
FHFA sued 18 banks in 2011 over losses to Fannie Mae and Freddie Mac on securities backed by risky mortgages. All but three of the banks — HSBC, Nomura and Royal Bank of Scotland Group Plc -- have settled. Goldman Sachs Group Inc. last week agreed to pay $3.15 billion to buy back mortgage-backed securities to settle FHFA claims against it. Goldman Sachs was also scheduled to begin trial next month.
Robert Sherman, a spokesman for London-based HSBC, and Jonathan Hodgkinson, a spokesman for Chuo-Ku, Japan-based Nomura, declined to comment on the ruling.
The FHFA said the banks defrauded Fannie Mae and Freddie Mac by making false statements about the quality of the loans underlying the securities. The regulator claimed the banks violated U.S. securities laws in addition to the laws of Virginia and the District of Columbia.
The FHFA sued more than three years after Fannie Mae and Freddie Mac bought the mortgage-backed securities, between Nov. 30, 2005, and July 3, 2007. The federal Securities Act requires claims to be made within three years. The Washington law has a three-year limit and the Virginia law a two-year limit, according to Cote. The banks said the claims were filed too late.
Cote ruled against motions to dismiss in cases involving UBS AG, HSBC and Nomura. UBS, Switzerland’s biggest bank, agreed in July 2013 to pay $885 million to settle the FHFA claims.
Cote ruled that the Housing and Economic Recovery Act of 2008 extended the time the FHFA could file claims. A federal appeals court in New York agreed with Cote, upholding her ruling in the UBS case.
HSBC and Nomura renewed their arguments after the U.S. Supreme Court in June issued its ruling in an environmental case involving CTS Corp. Cote ruled today that the CTS case doesn’t affect her rulings on the timing of the FHFA cases.
The case is Federal Housing Finance Agency v. HSBC North America Holdings Inc., 11-cv-06189, U.S. District Court, Southern District of New York (Manhattan).