December 27, 2012

Royal Bank of Scotland Group Plc on Thursday won the dismissal of a lawsuit by South Korea's Woori Bank over losses from mortgage-related investments, in a case between two big banks put under state control following financial crises.

Woori, whose parent Woori Finance Holdings Co is 57 percent owned by the South Korean government, accused RBS of selling it $80 million of collateralized debt obligations backed by residential mortgage-backed securities (RMBS) that it knew were riskier than their credit ratings suggested.

It also accused RBS of concealing its role in a multi-bank scheme to manipulate the London Interbank Offered Rate (Libor), on which the CDO investment returns were based.

U.S. District Judge Harold Baer in Manhattan, however, said Woori's complaint was shorn of the "usual telltale signals" that have persuaded other courts to allow similar cases accusing big banks of fraud in mortgage securities to go forward.

Baer also said RBS had made many disclosures about the securities' risks, and was not responsible for any defects in Woori's own assessment about the soundness of its purchases.

"I am not persuaded that RBS, by virtue of greater experience in the RMBS business, possessed some kind of expertise significantly greater than Woori and was somehow obligated to share it," Baer wrote. "It matters little that this was a new area of investment for Woori .... Woori has the relevant expertise; whether or not it put it to good use is a different matter entirely."

Christopher Lebsock, a partner at the Hausfeld law firm representing Woori, said in an email that Baer appeared "concerned with certain technical defects in the pleadings concerning RBS's knowledge of its conduct. The court has invited us to address these issues in a letter, and we look forward to doing so."

A lawyer for RBS did not immediately respond to a request for comment.

Created in the aftermath of the 1997 Asian financial crisis, Woori became the South Korean financial sector's biggest victim of the U.S. subprime mortgage crisis, writing off much of a roughly $1.5 billion stake in credit default swaps and CDOs.

The bank has lawsuits pending before other Manhattan federal judges against Citigroup Inc and Bank of America Corp's Merrill Lynch unit over alleged losses on a respective $95 million and $143 million of debt securities.

In 2013, RBS is expected to settle with multiple regulators over its alleged role in manipulating Libor, following earlier settlements by Britain's Barclays Plc and Switzerland's UBS AG.

RBS was effectively nationalized, with the British government taking an 82 percent stake, after incurring losses linked to the 2008 global financial crisis.

The case is Woori Bank v. RBS Securities Inc et al, U.S. District Court, Southern District of New York, No. 12-04254.

Copyright 2012 by Reuters. All rights reserved.

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