Deutsche Bank Securities (DB)
inked a deal with the National Credit Union Administration
to pay $145 million to cover losses associated with the failure of five credit unions that purchased residential mortgage-backed securities.
Deutsche Bank sold the five credit unions residential mortgage-backed securities. The investment bank admits no wrongdoing in the announcement.
The NCUA said it will use the proceeds from the settlement to help pay for losses stemming from those credit union failures. The additional cash flow also will allow the NCUA to reduce what it is currently charging other credit unions to cover those losses.
"We are fulfilling our statutory responsibility to secure maximum recoveries for credit unions and ensure that consumers remain protected," said NCUA Chairman Debbie Matz. "As part of our resolution strategy for the five failed credit unions, we raised over $28 billion in liquidity by resecuritizing troubled assets."
When credit unions fail, their financial losses are covered by the Temporary Corporate Credit Union Stabilization Fund. However, NCUA says that fund must be repaid and those proceeds generally come from charging other federally insured credit unions.
NCUA says it has charged credit unions $3.3 billion in the past two years to cover losses on the failure of five corporate credit unions. It will cost another $1.8 billion and $6.1 billion to cover the remaining losses from the credit union failures. The remaining amount must be paid by 2021.
To help its position further, NCUA placed the five credit unions into liquidation and ended up resecuritizing the troubled MBS, selling them back into the market with a government backstop. This maneuver alone produced $28.3 billion in proceeds, NCUA said.
NCUA also filed suit against four other securities firms, claiming they broke federal and state securities regulations and misrepresented the quality of RMBS.
In early August, NCUA claimed in a suit
that Goldman Sachs & Co. (GS)
committed federal and state securities violations by misrepresenting the risks associated with securities sold to two failed credit unions. In that suit, the NCUA is seeking $491 million in damages.
The five credit unions that failed include U.S. Central Corporate Credit Union
, Western Corporate Credit Union
, Southwest Corporate Credit Union
, Members United Corporate Credit Union
and Constitution Corporate Credit Union
. All five were taken into conservatorship in 2009 and 2010.
Write to Kerri Panchuk