Institutional investors sue RBS and S&P

5th Dec 2013 11:58

A group of institutional investors have sued Royal Bank of Scotland and rating agency Standard & Poor's for damages due to the financial crisis. A group of 16 continental institutions has filed a class-action claim in Amsterdam for $250m relating to constant-proportion debt obligations (CPDOs), a complex financial product created by RBS's ABN Amro arm and which were rated AAA by S&P, which is part of US-listed McGraw Hill. The claim is being backed by Australian-listed litigation funder Bentham IMF, which released details of the case in a statement to the Australian Stock Exchange. Sydney-based Bentham recently won a case in an Australian court against S&P for its rating over CPDOs, which was the first in the world where a ratings agency was found liable for AAA ratings on 'junk' derivatives. It said it planned to deploy many of the same facts, legal arguments and evidence successfully established in the Australian claim in the Dutch action.But a statement from S&P, which is appealing the Australian ruling and had filed an action in London to challenge the jurisdiction of the Netherlands, said: "This claim has no merit and we will oppose it vigorously. The ratings on these securities, which date back to 2005-6, were assigned in good faith based on the information available to us at the time."Bentham Executive Director John Walker countered that CPDOs were "among the worst-of-the-worst leveraged synthetic derivatives, causing billions of dollars to be lost by banks and pension funds reliant upon high ratings that had no reasonable basis".This was after the Australian judgement in November, which stated that S&P's rating was "misleading and deceptive and involved the publication of information or statements false in material particulars and otherwise involved negligent misrepresentations" to potential investors.Another Bentham-funded case, where the company's plaintiffs settled a class-action claim with Lehman Brothers's administrators over sub-prime losses generates by the collapsed bank, raises the probability that further similar cases may soon be brought in Europe and the US. OH