A lawsuit filed by South Korea-based Woori Bank against
The Royal Bank of Scotland Group plc
) was dismissed by a U.S. District judge in Manhattan. The
lawsuit was related to Royal Bank's sale of collateralized debt
obligations (CDOs) supported by risky residential mortgage-backed
securities (RMBS) to the latter prior to the 2008 financial
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Woori had alleged that Royal Bank sold it nearly $80 million
worth of CDOs, which were backed by the faulty RMBS through
misleading statements. Further, it alleged that the latter
manipulated the London Interbank Offered Rate (LIBOR), on which
the returns on these debt obligations were based.
However, the District Judge found the supporting evidence
furnished by Woori to be weak, and hence the verdict was ruled in
favor of Royal Bank. The judge also mentioned that Royal Bank had
made several revelations about the risks related to these
securities and was not accountable for any defects in Woori's own
appraisal about the dependability of its purchases.
However, the technical defects in the Royal Bank's pleadings of
its conduct have prompted lawyers representing Woori to proceed
with further litigation against it. Woori Bank - formed after the
1997 Asian economic crisis- has bore the brunt of the subprime
mortgage crisis to a great extent, losing nearly $1.5 billion in
credit default swaps and CDOs. Woori has pending lawsuits against
Bank of America Corporation
) Merrill Lynch over suspected losses on $95 million and $143
million of debt securities, respectively.
As for Royal Bank, the lawsuit dismissal brings some relief. The
bank has been under tremendous pressure after incurring huge
losses during the last financial meltdown. Moreover, its alleged
role in LIBOR manipulation has made things worse. However, the
British government has pitched in for the rescue effort by a
majority stake buyout. We believe that this is likely to prove
beneficial for Royal Bank in stabilizing its operations.
Royal Bank currently retains a Zacks #2 Rank, which translates
into a short-term Buy rating.