NEW YORK (Reuters) - Royal Bank of Scotland Group Plc (>> Royal Bank of Scotland Group plc) must face a U.S. lawsuit seeking to force it to cover losses suffered by a bond insurer on a $1.15 billion (695.66 million pounds) securities offering backed by allegedly defective and fraudulent home loans.
U.S. District Judge John Koeltl in Manhattan said RBS must defend itself against claims by Assured Guaranty Ltd (>> Assured Guaranty Ltd.) that the taxpayer-owned bank committed fraud, and aided and abetted fraud, by inducing it to insure part of a 2007 securitization, and expose it to more than $100 million of potential losses.
The allegations "raise a strong inference that RBS had a specific motive and intent to deceive the plaintiff in order to obtain the policy for a specific transaction," Koeltl said.
Koeltl issued his ruling orally at a March 17 hearing, for which Reuters obtained a transcript that has not been posted to the court's public website.
Lawyers representing RBS and Assured Guaranty declined to comment. Britain's government owns 81 percent of RBS.
The case is one of many accusing banks that packaged mortgages into securities prior to the 2008 financial crisis of deceiving investors and insurers about underwriting quality, resulting in losses when market conditions deteriorated.
It concerned an offering called Southview Home Loan Trust 2007-WMC1, which involved more than 4,900 home loans made by WMC Mortgage Corp, a now defunct subprime lending unit of General Electric Co (>> General Electric Company).
Assured said it would not have agreed to insure $291 million of certificates issued through that offering, had RBS not concealed how the offering ignored underwriting guidelines and lent money without regard to borrowers' ability to repay.
Total losses on the $1.15 billion offering had reached $454 million, with 61 percent of the remaining loans in default, by June 2013, Assured said.
In his ruling, Koeltl said it was too soon to decide whether Assured had relied unreasonably on data and documents it did review, citing industry practices, the amount of work needed for an independent assessment, and "the time frame within which Assured was requested to issue the policy."
Koeltl dismissed a third claim by Assured, in which it said that New York state insurance law entitled it to recoup payments it makes under its policy without resorting to "rescission."
Assured last year announced settlements of similar lawsuits it had brought against Flagstar Bancorp Inc (>> Flagstar Bancorp Inc), JPMorgan Chase & Co (>> JPMorgan Chase & Co.) and UBS AG (>> UBS AG).
The case is Assured Guaranty Municipal Corp. v. RBS Securities Inc et al, U.S. District Court, Southern District of New York, No. 13-02019.
(Reporting by Jonathan Stempel in New York; Additional reporting by Nate Raymond; Editing by Tom Brown)
By Jonathan Stempel