S&P and ABN Amro suffer Australian legal defeat

Head office of ABN Amro bank Image copyright Reuters
Image caption S&P and ABN Amro should be liable for 100% of the losses suffered, the court said on Friday.

Two financial institutions have lost an Australian court appeal against a decision that they "deceived" investors prior to the 2008 financial crisis.

Credit ratings agency Standard & Poor's and Dutch bank ABN Amro are being sued over financial products that lost most of their value in the downturn.

The case was brought by 12 Australian local authorities.

S&P and ABN Amro should be liable for 100% of the losses suffered, the court said on Friday.

Australia's federal court dismissed appeals by Standard & Poor's and ABN Amro after investors successfully sued the firms.

The initial 2012 ruling said that the companies should be liable for 33% of the value of the credit derivatives.

The councils sued after being assured by Local Government Financial Services, an investment manager which sold the so-called "Rembrandt" notes arranged by ABN Amro in late 2006, that they had a less than 1% chance of defaulting.

Within six months, the councils lost A$16m ($14.9m, £8.9m), or 90% of the funds they had invested.

The products should not have been given triple-A ratings by S&P, the court said.

The case was the one of the first against a rating agency over financial products widely cited as one of the factors that triggered the 2008 crisis.

S&P said it was disappointed by Friday's ruling, but declined to say whether it would appeal again.

"We continue to believe that it is bad policy to enforce a legal duty against a party like S&P, which has no relationship with investors who use rating opinions, yet impose no responsibility on those investors to conduct their own due diligence," it said in a statement.

ABN Amro's investment division was owned by RBS at the time the derivatives were sold. RBS declined to comment on Friday.

S&P is facing legal action in other parts of the world over its ratings prior to the financial crisis.

In the US, sixteen states may pursue claims alleging that S&P issued misleading credit ratings.