Credit union lawsuits against RBS top $1bn

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Royal Bank of Scotland (RBS) faces lawsuits for more than $1bn (£620m) accusing the bank of misleading US credit unions over bonds backed by so-called liars' loans.

The US National Credit Union Administration (NCUA) this week filed its second suit in a month against RBS seeking more $629m over the sale of mortgage bonds to WestCorp credit union. RBS may face further claims.

The lawsuit, filed in US district court in Los Angeles, alleges the loans featured "systemic" misrepresentations about borrowers' incomes, debts, equity and intentions to live in properties that were mortgaged.

The claim comes on top of last month's similar suit against RBS demanding $565m for losses suffered by Kansas' US Central Corporate Credit Union. NCUA is trying to recover losses caused by $50bn of failed securities that were held by credit unions.

NCUA's chairman, Debbie Matz, said: "By these actions we intend to hold responsible parties accountable. We expect to file additional actions, seeking damages in the billions of dollars. Those who caused the problems in the wholesale credit unions should pay for the losses now being paid by retail credit unions."

NCUA said it would bring up to 10 claims against banks to recover losses incurred by credit unions when the value of mortgage-backed securities plunged in the financial crisis.

WestCorp was one of the biggest US credit unions with $23bn of assets when it was brought down by investments in bonds backed by mortgages that either failed to check borrowers' incomes or allowed them to pay off so little that their loan increased.

During the credit boom, RBS's US securities business became one of the biggest middle men, packaging up sub-prime mortgages for sale to other financial companies. A spokesman declined to comment on whether further suits would target RBS.

The securities were sold before the financial crisis when the bank was under different management.