Investments

RBS to pay $129.6 million to NCUA to settle RMBS losses

NCUA’s total recoveries in securities cases now exceed $1.9 billion

The Royal Bank of Scotland (RBS) will pay $129.6 million to the National Credit Union Administration to resolve claims arising from losses related to purchases of residential mortgage-backed securities by Members United and Southwest corporate credit unions.

In 2013, the NCUA filed suit against RBS, Morgan Stanley (MS) and eight other institutions over the sale of nearly $2.4 billion in mortgage-backed securities to Southwest and Members United.

At the time, NCUA alleged that RBS, Barclays (BCS), JPMorgan Chase (JPM), Credit Suisse (CS), UBS (UBS) and other institutions sold toxic MBS to both corporate credit unions.

The NCUS alleged at the time that the firms made misrepresentations in connection with the underwriting and subsequent sales of MBS.

The corporate credit unions subsequently became insolvent, were placed into NCUA conservatorship and later liquidated as a result of losses from the faulty bonds, which caused significant losses to the credit union system, according to the NCUA.

“NCUA has a statutory obligation to secure recoveries for credit unions and ensure that consumers remain protected,” NCUA Board Chairman Debbie Matz said in a statement announcing the settlement with RBS.

“We can assure stakeholders that we will continue to aggressively pursue recoveries against Wall Street firms that contributed to the corporate crisis,” Matz continued. “Each recovery as well as our ongoing lawsuits further NCUA’s goal of minimizing the losses of the corporate crisis and future costs to credit unions.”

According to the NCUA, it has now obtained more than $1.9 billion in legal recoveries.

NCUA said that it uses the net proceeds to reduce its “Temporary Corporate Credit Union Stabilization Fund” assessments charged to federally insured credit unions to pay for the losses caused by the failure of five corporate credit unions, U.S Central, WesCorp, Members United, Southwest, and Constitution.

According to NCUA, it still has litigation pending in federal courts in Kansas and California against Royal Bank of Scotland for sales of faulty residential mortgage-backed securities to U.S. Central and Wescorp.

NCUA also has lawsuits pending against Goldman Sachs (GS), Wachovia, UBS, Barclays, Credit Suisse and Morgan Stanley based on the sale of faulty securities.

The National Association of Federal Credit Unions celebrated the latest recovery by the NCUA.

"We appreciate NCUA’s persistence and applaud the recovery of the funds on the sale of faulty securities that led to the downfall of five corporate credit unions," said NAFCU Senior Vice President of Government Affairs and General Counsel Carrie Hunt.

“NAFCU strongly encourages the agency to not only continue its vigilant legal recovery campaign, but we also urge NCUA to be fully transparent with the industry as to how these recoveries will eventually be refunded to credit unions,” Hunt concluded.

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