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36 NOMURA SETTLES RMBS SUIT WITH DOJ e Justice Department has announced that Nomura Holding America Inc. has agreed to pay a penalty of $480 million to settle claims that the bank misled investors in marketing and selling defective residential mortgage-backed securities (RMBS). According to the Justice Department, these actions taken by the Tokyo-based bank helped precipitate the subprime mortgage crisis—which in turn led to the global recession of 2008. Nomura contended that its due diligence was both "extensive" and "disciplined" in regard to the selling of these securities, a claim that the U.S. Attorney's office in Brooklyn states is false. Regardless, Nomura has settled without admitting liability or wrongdoing, and in the settlement persists in disputing the government's allegations. Nomura is one of the last financial institutions, either domestic or foreign, to settle with U.S. authorities on this matter. Bank of America Corp. and JPMorgan Chase & Co., for instance, struck the largest settlements back in 2013 and 2014, with Bank of America agreeing to pay $17 billion and JP Morgan $13 billion. Nomura stated that the agreement will shave around 20 billion yen, or $180 million, from second-quarter expectations. In a written statement, the bank also stated that "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." In contrast to settlements reached by the Department of Justice under the Obama administration, this particular agreement with Nomura does not impose consumer relief or payments to state or federal agencies, but according to a written statement made by Richard Donoghue, a U.S. Attorney with the Justice Department, "this settlement holds Nomura accountable for its fraudulent connection with residential mortgage-backed securities offerings, which caused substantial harm to investors and contributed to the financial crisis of 2008." e Justice Department has recently made a concerted effort to resolve all investigations into the packaging and selling of mortgage bonds which contributed to the crisis. Wells Fargo & Co. and Royal Bank of Scotland (RBS) both settled in August for similar claims. Wells Fargo agreed to pay $2 billion, whereas RBS agreed to $4.9 billion. HSBC Holdings Plc settled for $765 million only a week prior to the agreement reached with Nomura. WHAT DID S&P SAY ABOUT MORTGAGE DEFAULTS? Consumer-credit default rates for mortgages have remained fairly stable in 2018, according to the latest S&P/Experian Consumer Credit Default Indices. e data indicated that the first mortgage default rate decreased by two basis points to 0.63 percent in September, compared with 0.65 percent in August 2018. On a year-over-year basis, the index indicated that first mortgage defaults were down three basis points from 0.66 percent during the same period last year. e S&P/Experian Consumer Credit Default Indices represent a comprehensive measure of changes in consumer-credit defaults. e composite rate of all consumer- credit defaults (auto, credit card, and mortgage) was down five basis points compared to August 2018 at 0.82 percent. e largest month-over-month drop in defaults was seen in bank-card defaults, which fell 38 basis points to 3.14 percent. e five major metropolitan areas covered by these indices—Dallas, Los Angeles, Chicago, New York, and Miami— recorded a decrease in composite default rates, with Dallas registering the largest drop falling 11 basis points to 0.73 percent in September. e default rate in Miami saw the smallest drop, falling just one basis point to 1.56 percent. "Consumer-credit default rates for mortgages and auto loans are stable, while default rates for bank cards declined modestly in the last few months," said David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. "With the low unemployment rate and some improvement on wage gains, consumers are not facing rising economic pressure." Attributing the current "good consumer- credit default pattern" to favorable incomes and slowing auto and home sales, Blitzer said that soft retail sales growth had contributed to improvements in the bank- card default picture. Looking ahead, Blitzer said that the current hurricane season would have a short-term impact in retail sales in the impacted areas. "However, this is likely to be followed by rising retail sales and spending combined with weaker consumer financial conditions for consumers in affected regions. Depending on the extent and severity of the storm damage, consumer-credit default rates in some regions could rise during the rest of 2018," he said.

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