Risk & Compliance

RBS Settles California MBS Case for $125M

“RBS decided to mislead California’s pension funds in order to line its own pockets — plain and simple,” California's attorney general says.
Matthew HellerDecember 26, 2017

Royal Bank of Scotland Group has settled another case arising out of its sale of toxic mortgage-backed securities, agreeing to pay $125 million to two California pension funds.

The California Public Employees’ Retirement System and the California State Teachers’ Retirement System both lost millions of dollars on their investments in mortgage-backed securities after the market crashed in 2008.

In announcing the settlement, the California Attorney General’s Office said RBS failed to accurately disclose the true characteristics of many of the underlying mortgages and failed to adequately perform due diligence to remove poor quality loans from the securities.

“RBS decided to mislead California’s pension funds in order to line its own pockets — plain and simple,” Attorney General Becerra said in a news release. “[The] settlement returns to our pension funds, which hardworking Californians rely on upon retirement, money that RBS wrongfully took from them.”

RBS Chief Executive Officer Ross McEwan said the bank was pleased to have reached the settlement, which related to issues with mortgage-backed securities in 2004 to 2008.

“We have been very clear that putting our remaining legacy issues behind us is a key part of our strategy,” he said.

In a similar move, RBS agreed in July to pay $5.5 billion to resolve a lawsuit by the Federal Housing Finance Agency, the conservator for Fannie Mae and Freddie Mac, that alleged it misled the mortgage giants into buying mortgage-backed securities.

The U.S. National Credit Union Administration also announced in September 2016 that RBS had agreed to pay $1.1 billion to resolve claims over mortgage-backed securities it sold to credit unions that later failed.

The California Attorney General has so far recovered more than $1 billion for public pension funds that invested in MBS, including $150 million from rating agency Moody’s, $210 million from rating agency Standard & Poor’s and its parent, McGraw-Hill Financial, $300 million from Bank of America, $102 million from Citigroup, and $300 million from JPMorgan Chase.