British fraud office examining mortgage-backed securities

5th September 2011, Comments 0 comments

Britain's Serious Fraud Office said on Monday it was examining bank mortgage-backed securities but had yet to launch a formal probe, after US officials sued banks over such instruments.

"We are conducting a scoping exercise into UK banks which sold asset-backed securities," an SFO spokeswoman told AFP after the Financial Times said the fraud office was looking at whether lenders fraudulently mis-represented deals in Britain.

"This has been an area of interest for a while," the spokeswoman said but stressed that "there is no active investigation at the moment."

The FT said on Monday that securities packaged by Deutsche Bank were among half a dozen deals being examined by the SFO.

The business daily added that the SFO has spent two years examining sales of asset-backed securities, which it described as bonds backed by repayments on large pools of loans such as mortgages.

On Friday, US authorities sued 17 top US and foreign banks over "billions of dollars" in losses on mortgage-backed securities that plunged in value in the 2008 financial crisis.

In court filings the Federal Housing Finance Agency (FHFA) alleged that in some cases the lenders committed fraud in selling nearly $190 billion in securities to mortgage giants Fannie Mae and Freddie Mac, which needed government bailouts.

US firms targeted in the suits included Bank of America, Goldman Sachs, Citigroup, JPMorgan Chase, Morgan Stanley, General Electric, Ally Financial and First Horizon.

The foreign banks were Deutsche Bank, HSBC, Credit Suisse, Barclays, Nomura, the Royal Bank of Scotland and Societe Generale.

The FHFA also sued two former mortgage giants -- Countrywide Financial and Merrill Lynch -- which are now part of Bank of America.

The landmark move had been urged by consumer advocates, who argued that Wall Street banks have not been held responsible for actions that caused the financial crisis.

The crisis was sparked when a bubble in US housing prices popped and mortgage-backed securities lost much of their value, sending shockwaves through the global banking system.

© 2011 AFP

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