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Barclays has won a legal case brought against it by a small San Marino bank which alleged the UK bank sold it complex debt products which were “much riskier” than the triple A credit rating they had been given.
Cassa di Risparmio della Repubblica di San Marino (CRSM) had claimed €92m ($128m) in losses and lost income, alleging fraudulent misrepresentation over the sale of ultra complex collateralised debt obligations (CDOs) during a long-running trial in the UK’s High Court. Barclays had strongly denied the claims.
Mr Justice Hamblen ruled on Wednesday that CRSM’s claims all failed on various grounds and must be dismissed, “despite the considerable skill with which the claimant’s case was constructed and presented”.
Barclays said it welcomed the ruling. “We have consistently said this case was without merit and any factual basis,” it said.
The case centred around four sets of structured notes with a total nominal value of €406m sold by Barclays to CRSM in early 2005.
The notes had embedded within them complex credit derivatives known as CDOs which gave exposure to the credit risk of a pool of assets which included further CDOs.
CRSM had alleged that Barclays sold the notes on the basis of an agreed triple A rating which they intended CRSM to rely on as indicating a minimal level of risk when Barclays knew that the notes were far riskier than their credit rating indicated.
The ruling is important because it is one of a number of actions faced by banks over complex credit products that have triggered widespread losses in the financial industry. The case has also shone a spotlight into the sale of these derivative products at the height of the markets boom.
The judgment will be closely watched by several banks that are considering bringing lawsuits against larger institutions over the sale of complex financial instruments.
In another case last year, the High Court ruled in favour of Royal Bank of Scotland which was fighting a claim brought against it by one of Austria’s biggest banks in relation to a complex financial transaction relating to a syndicated loan.
A judge ruled that RBS, which is majority owned by the UK government, did not mislead Raiffeisen Zentralbank Osterreich in relation to a complex transaction instigated by RBS for Enron in 2000.
Separately, Italian police and judicial authorities have mounted a widening investigation into banks’ sales of complex derivatives worth a total of €40bn to Italian municipalities from 2001 to 2008.
In December, Italian finance police swooped on six banks, including Deutsche Bank and Bank of America, and named 22 people in an investigation into alleged fraudulent sales of €1.4bn worth of derivatives to local authorities in Tuscany.
