RBS to pay $275 mn to settle junk securities lawsuit

Royal Bank of Scotland Group Plc (RBS), majority owned by the British government, yesterday agreed to pay $275 million to settle a US lawsuit related to mortgage-backed securities.

If approved by the US District Court in the Southern District of New York, the settlement will bring to a close the consolidated class action lawsuit brought in 2008 by several pension funds against RBS and other defendants over 14 soured mortgage securities of ''Harborview'' series of  Mortgage Loan Trusts (MBS) issued in 2006 and 2007.

The lawsuit was led by New Jersey Carpenters Health Fund and the Boilermaker Blacksmith Pension Trust, along with additional class representatives Iowa Public Employees' Retirement System and Midwest Operating Engineers Pension Trust Fund.

The plaintiffs charged that the public offering documents RBS used to sell the Harborview MBS certificates failed to disclose that the mortgage loans collateralising the certificates did not meet applicable underwriting guidelines.

By late 2008, virtually all of those certificates were downgraded to junk bond status.

''It's taken a great deal of work over many years by everyone involved, but this settlement, which provides significant compensation to investors, was worth it,'' said George Laufenberg, a representative of the New Jersey Carpenters Health Fund, which led the litigation since 2008.

''We are pleased with the result of this case,'' said Cohen Milstein managing partner Steven Toll, whose firm was named lead counsel in the consolidated class action. ''This settlement will give closure and monetary relief to investors who suffered losses in connection with these Harborview MBS.''

The latest out-of-court settlement comes after RBS last year was fined $100 million for violating US sanctions against Iran, Myanmar, Sudan and Cuba and also fined €391million by the European Commission over manipulation of London interbank offered rate (Libor).