In 2013, the National Credit Union Administration filed suit against some of the world’s biggest banks over the sale of nearly $2.4 billion in faulty residential mortgage-backed securities to several corporate credit unions, which subsequently failed during the financial crisis, due in part to losses from those very same mortgage bonds.
Since then, the NCUA reached settlement agreements with Barclays, Wachovia, which is now a part of Wells Fargo, Royal Bank of Scotland, Morgan Stanley, and others, over the losses and failures of U.S. Central Federal Credit Union, Western Corporate Federal Credit Union, Members United Corporate Federal Credit Union, and Southwest Corporate Federal Credit Union.
The total amount recovered for the failed credit unions in those settlements is more than $4 billion, but this week, for the first time, the NCUA revealed just how much it cost to reach those settlements.
NCUA’s price tag for recovering $4.3 billion for the failed credit unions? Just over $1 billion, paid out to lawyers.
According to NCUA Board Chairman Rick Metsger, the use of “expert outside counsel” was and continues to be critical in the NCUA’s fight to recover the money lost by the failed credit unions.
“We were the first federal financial institutions regulator to sue these firms, and we were going up against some of the world’s most powerful institutions,” Metsger said.
“The outcome was far from certain, but we engaged expert outside counsel, and our team has been very successful,” Metsger said. “To date, we’ve obtained $4.3 billion in recoveries, significantly reducing potential assessments for credit unions.”
Metsger said that the attorneys involved took the NCUA’s cases under contingency fee arrangements, meaning the law firms would have received far less than $1 billion if the NCUA lost the respective cases.
“Net recoveries have repaid some of the claims on the estates of the five failed corporates, including those of the Temporary Corporate Credit Union Stabilization Fund,” Metsger said.
“While earlier cases in which billions of dollars were at stake were pending, NCUA did not disclose attorney fee arrangements to protect our litigation position and ensure maximum returns,” Metsger said. “Now that most of the securities cases have been resolved, NCUA can state that, to date, legal fees to our two lead law firms come to approximately 23.2% of our total recoveries, or $1,003,029,479.”
Metsger said if the lawyers involved hadn’t agreed to the contingency agreements, which “insulated” the NCUA from the high costs of litigating unsuccessful cases, there would have been no money recovered. Instead, the NCUA recovered $4.3 billion.
“Without this fee arrangement, which shifted most of the risk of these legal actions to outside counsel, there would have been no legal investigation of potential claims, no litigation, and no legal recoveries,” Metsger said.
The NCUA said that because of the “unique and highly complex” nature of these securities lawsuits, it felt it necessary to engage outside counsel.
The NCUA then contracted Korein Tillery and Kellogg, Huber, Hansen, Todd, Evans & Figel to litigate the various cases on the NCUA’s behalf.
In total, the NCUA paid $506,349,311 to Kellogg Huber in legal fees and expenses, and $504,774,171 to Korien Tillery for similar fees and expenses.
The fight to get the credit unions’ money back has been a long one.
In October 2015, Barclays and Wachovia said they would pay a total of $378 million to NCUA as part of two separate settlements stemming from losses related to purchases of residential mortgage-backed securities.
In September 2015, RBS agreed to a $129.6 million settlement with the NCUA over similar claims.
In December 2015, Morgan Stanley agreed to pay $225 million to settle as well.
Earlier this year, Credit Suisse agreed to pay $29 million to settle with NCUA, and UBS agreed to pay $69.8 million to settle as well.
And that’s just a handful of the settlements.
The NCUA said that its recovery efforts are continuing through ongoing litigation.