Federal prosecutors are actively pursuing criminal cases against executives from Royal Bank of Scotland Group (LON:RBS) and US peer JP Morgan & Chase for allegedly selling flawed mortgage securities, the Wall Street Journal has revealed. News of the criminal probe comes after Moody’s warned earlier this week that the bailed-out lender remains at high risk from regulatory investigations related to its conduct during the financial crisis.
RBS’ share price rose in yesterday’s session, adding 0.84 percent to close at 311.00p. The shares, however, underperformed the benchmark FTSE 100 index which closed 1.99 percent higher at 6,268.76 points.
People with knowledge of the probes told the WSJ last night that US officials were working to establish that the bankers had ignored warnings from associates that they were packaging too many shaky mortgages into investment offerings, and are weighing up whether they could prove that constituted fraud. At RBS, prosecutors are reportedly focusing on a $2.2-billion (£1.5 billion) deal which repackaged home mortgages into bonds in 2007. The sources noted that some Justice Department officials believed that they have a viable criminal case, but that the decision whether to bring the charges is not expected until early next year.
The report comes after earlier this week, Moody’s ranked RBS and FTSE 100 peers Barclays (LON:BARC) and HSBC (LON:HSBA) at high risk from ongoing investigations. In the case of RBS, the ratings agency pointed to potential penalties for the sale of mortgages and mortgage bonds in the run-up to the crisis. The bailed-out lender meanwhile flagged “material further and incremental costs and provisions in respect of conduct and litigation related matters” in its third-quarter statement, warning that they “could be substantially greater than the aggregate provisions RBS has recognised”.