Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
NatWest is suing a mortgage finance company formerly backed by General Motors for more than €155mn over soured securitisation deals struck in the run-up to the financial crisis.
The High Court in London last week heard a case brought by the UK bank against CMIS, which was originally part of GM when the US car company was making a push into mortgage finance.
The dispute relates to agreements that ABN Amro — the Dutch bank acquired in 2007 by a consortium led by Royal Bank of Scotland, which has since been renamed NatWest — entered into with CMIS under its previous guise of General Motors Acceptance Corp.
The deals were designed to manage financial risks facing GMAC associated with the securitisation of residential mortgages that it originated in the Netherlands and Germany.
Homeowners who took out the mortgages paid a fixed interest rate on their loans, which between 2006 and 2008 were packaged up and sold to investors as securities that offered a variable return.
Given the financial risk of a cash flow “mismatch”— and to allow the securities to attract prized AAA ratings from credit rating agencies — GMAC entered into interest rate swap agreements with ABN Amro.
As part of the hedging deal, the two parties agreed “deeds of indemnity” under which NatWest said payments were due to it.
However, NatWest’s lawyers complained to the court during the two-day hearing last week that CMIS had “failed to pay the sums falling due” since 2017, having made the payments for about a decade beforehand.
Jonathan Davies-Jones KC, representing the UK bank, said in written submissions that the “true explanation” for CMIS’s “volte-face” was a “significant increase” in the size of payments required under the deal.
GMAC originated about €10bn of Dutch mortgages between 2000 and 2008, but suspended selling new mortgages during the crisis, according to court documents.
GMAC, which was bailed out by the US government during the crisis, sold its European mortgage business in 2010 to funds managed by Fortress Investment Group.
Tom Smith KC, for CMIS, said in written arguments that CMIS was “effectively in a state of run-off” and had “nowhere near enough funds to pay the sums claimed” by NatWest. The bank is seeking €155mn plus interest.
Smith said “no one has been able to adduce any meaningful evidence” as to why the first deed of indemnity was executed in 2006.
He added that the agreement was entered into “at the height of the securitisation bonanza, immediately prior to the global financial crisis.
“The deed was signed by executives at General Motors and ABN Amro, both of which notoriously collapsed during the crisis. The protagonists have now moved on, and one can only imagine what machinations took place behind the scenes.”