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29 Legal, competition and regulatory matters continued
Claimed Amounts/Financial Impact
It is not currently practicable to provide an estimate of the financial impact of the potential exposure of the actions described or what effect, if any,
that they might have upon operating results, cash flows or the Group’s financial position in any particular period.
US Residential and Commercial Mortgage-related Activity and Litigation
The Group’s activities within the US residential mortgage sector during the period from 2005 through 2008 included:
Q Sponsoring and underwriting of approximately $39bn of private-label securitisations;
Q Economic underwriting exposure of approximately $34bn for other private-label securitisations;
Q Sales of approximately $0.2bn of loans to government sponsored enterprises (GSEs);
Q Sales of approximately $3bn of loans to others; and
Q Sales of approximately $19.4bn of loans (net of approximately $500m of loans sold during this period and subsequently repurchased) that were
originated and sold to third parties by mortgage originator affiliates of an entity that the Group acquired in 2007 (Acquired Subsidiary).
Throughout this time period affiliates of the Group engaged in secondary market trading of US residential mortgaged-backed securities (RMBS)
and US commercial mortgage backed securities (CMBS), and such trading activity continues today.
In connection with its loan sales and certain private-label securitisations the Group provided certain loan level representations and warranties
(R&Ws), which if breached may require the Group to repurchase the related loans. On 31 December 2014, the Group had unresolved repurchase
requests relating to loans with a principal balance of approximately $2.6bn at the time they were sold, and civil actions have been commenced by
various parties alleging that the Group must repurchase a substantial number of such loans. In addition, the Group is party to a number of
lawsuits filed by purchasers of RMBS asserting statutory and/or common law claims. The current outstanding face amount of RMBS related to
these pending claims against the Group as of 31 December 2014 was approximately $0.9bn.
Regulatory and governmental authorities have initiated wide-ranging investigations into market practices involving mortgage-backed securities,
and the Group is co-operating with several of those investigations.
RMBS Repurchase Requests
Background
The Group was the sole provider of various loan-level R&Ws with respect to:
Q Approximately $5bn of Group sponsored securitisations;
Q Approximately $0.2bn of sales of loans to GSEs; and
Q Approximately $3bn of loans sold to others.
In addition, the Acquired Subsidiary provided R&Ws on all of the $19.4bn of loans it sold to third parties.
R&Ws on the remaining Group sponsored securitisations were primarily provided by third-party originators directly to the securitisation trusts with
a Group subsidiary, such as the depositor for the securitisation, providing more limited R&Ws. There are no stated expiration provisions applicable
to most R&Ws made by the Group, the Acquired Subsidiary or these third parties.
Under certain circumstances, the Group and/or the Acquired Subsidiary may be required to repurchase the related loans or make other payments
related to such loans if the R&Ws are breached.
The unresolved repurchase requests received on or before 31 December 2014 associated with all R&Ws made by the Group or the Acquired
Subsidiary on loans sold to GSEs and others and private-label activities had an original unpaid principal balance of approximately $2.6bn at the
time of such sale.
A substantial number (approximately $2.2 billion) of the unresolved repurchase requests discussed above relate to civil actions that have been
commenced by the trustees for certain RMBS securitisations in which the trustees allege that the Group and/or the Acquired Subsidiary must
repurchase loans that violated the operative R&Ws. Such trustees and other parties making repurchase requests have also alleged that the
operative R&Ws may have been violated with respect to a greater (but unspecified) amount of loans than the amount of loans previously stated in
specific repurchase requests made by such trustees. All of the litigations involving repurchase requests remain at early stages.
Claimed Amounts/Financial Impact
It is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect, if any, that they
might have upon the Group’s operating results, cash flows or financial position in any particular period.
RMBS Securities Claims
Background
As a result of some of the RMBS activities described above, the Group is party to a number of lawsuits filed by purchasers of RMBS sponsored
and/or underwritten by the Group between 2005 and 2008. As a general matter, these lawsuits allege, among other things, that the RMBS offering
materials allegedly relied on by such purchasers contained materially false and misleading statements and/or omissions and generally demand
rescission and recovery of the consideration paid for the RMBS and recovery of monetary losses arising out of their ownership.
The original face amount of RMBS related to the pending civil actions against the Group total approximately $2.4bn, of which approximately
$0.9bn was outstanding as at 31 December 2014.
Cumulative realised losses reported on these RMBS as at 31 December 2014 were approximately $0.3bn.
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