By Brendan Pierson
NEW YORK (Reuters) - Nomura Holdings Inc (T:8604) and Royal Bank of Scotland Group Plc (L:RBS) lost a U.S. court appeal on Thursday to overturn an order requiring them to pay $839 million for making false statements while selling mortgage-backed securities to Fannie Mae (PK:FNMA) and Freddie Mac (PK:FMCC).
The two banks had challenged the 2015 award on multiple grounds, including that the loss of the securities' value was largely caused not by any false statements, but by the broader financial crisis in 2008.
A unanimous panel of the U.S. Court of Appeals for the 2nd Circuit in New York, however, rejected that and other arguments.
"Defendants may not hide behind a market downturn that is in part their own making simply because their conduct was a relatively small part of the problem," Circuit Judge Wesley wrote on behalf of the panel.
Representatives of Nomura and RBS declined to comment. RBS, which underwrote but did not sponsor securities at issue in the case, said in an August filing with U.S. securities regulators that it would seek to have Nomura indemnify it for its losses.
The award stems from a 2011 lawsuit brought against Nomura and RBS by the Federal Housing Finance Agency in 2011. The FHFA has acted as conservator of mortgage agencies Fannie Mae and Freddie Mac since their 2008 takeover by the federal government after the collapse of the U.S. housing market.
The lawsuit was one of 18 brought by the FHFA that year over some $200 billion in mortgage-backed securities that banks sold Fannie Mae and Freddie Mac.
All the other lawsuits have been settled. The FHFA has recovered more than $23 billion from the settlements, including $5.5 billion from RBS in a different lawsuit, $5.83 billion from Bank of America Corp (N:BAC) and $4 billion from JPMorgan Chase & Co (N:JPM).
Following a non-jury trial, U.S. District Judge Denise Cote in 2015 ruled against Nomura, which sponsored $2 billion of securities sold to Fannie and Freddie, and RBS, which underwrote four of the deals.
She ruled that the offering documents for the securities did not correctly describe the underlying mortgages and ordered the banks to pay $806 million. The banks later agreed to pay another $33 million for costs and attorneys’ fees, subject to the outcome of their appeal.
The case is Federal Housing Finance Agency v. Nomura Holding America Inc et al, 2nd U.S. Circuit Court of Appeals, No. 15-1872.