Nomura Agrees to Pay $480 Million Over Crisis-Era Securities

(Bloomberg) -- Nomura Holding America Inc. and affiliates agreed to pay a $480 million penalty to resolve U.S. claims that the bank misled investors in marketing and selling mortgage-backed securities tied to the 2008 financial crisis, according to the Justice Department.

Tokyo-based Nomura is one of the last banks to settle with U.S. authorities over its handling of securities backed by some low-quality loans. Nomura falsely claimed that its due diligence on the securities was “extensive” and “disciplined,” according to the U.S. attorney’s office in Brooklyn, New York. Nomura settled the case without admitting liability or wrongdoing and says it disputes the government’s allegations, according to the settlement document.

“The company and the U.S. subsidiaries consider it to be in their best interests to conclude this matter and avoid protracted and expensive litigation concerning transactions and practices that occurred 10 or more years ago,” the bank said in a written statement.

Over the past few months, the Justice Department has been moving to wrap up Obama-era investigations into conduct involving mortgage bonds that it says contributed to the 2008 financial crisis. Last week, HSBC Holdings Plc agreed to pay $765 million to settle allegations that it sold defective mortgage securities. In August, Wells Fargo & Co and Royal Bank of Scotland Group Plc agreed to pay $2 billion and $4.9 billion, respectively, to resolve similar allegations.

The biggest settlements, struck in 2013 and 2014, had Bank of America Corp. and JPMorgan Chase & Co. agreeing to pay $17 billion and $13 billion, respectively, to resolve their cases.

Nomura said its settlement will trim about 20 billion yen ($180 million) from second-quarter results.

Unlike prior mortgage-related settlements with the Obama administration, this one doesn’t impose consumer relief or payments to state or federal agencies. For example, Citigroup Inc.’s $7 billion settlement included payments of $2.5 billion to help consumers and $500 million to federal agencies and state governments.

“This settlement holds Nomura accountable for its fraudulent conduct in connection with its residential mortgage-backed securities offerings, which caused substantial harm to investors and contributed to the financial crisis of 2008,” U.S. Attorney Richard Donoghue said in a written statement.

In 2006 and 2007, Nomura misled investors about the quality of mortgage loans that were being packaged into securities, leading to significant losses to Fannie Mae and Freddie Mac, according to the Justice Department statement. Federal investigators cite communications alleging that Nomura knew some loans didn’t comply with underwriting guidelines.

“Nomura concealed these deficiencies from investors, securitizing many of these defective loans as ‘favors’ to loan originators -- including, for example, loans that one originator openly described to Nomura as ‘dogsh[*]t,’” the Justice Department said.

One member of Nomura’s due diligence group for residential mortgage-backed securities is quoted by the government as saying: “There is no such thing as a bad loan...just a bad price.”

To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net

To contact the editors responsible for this story: Jeffrey D Grocott at jgrocott2@bloomberg.net, David S. Joachim, Andrew Martin

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