Two Banks Settle Mortgage-backed Securities Cases with NCUA for $165.5M (Misc News: November 15, 2011)
Deutsche Bank Securities and Citigroup will pay $165.5 million to the NCUA after settling their cases over mortgage-backed securities that were sold to corporate credit unions but later turned toxic.
CU Journal reported that after legal and other costs are deducted, the settlement will represent more than $100 million in net funds that will be applied to the 2012 stabilization fund assessment, which is roughly a 1 basis point reduction from what it would have been otherwise.
Citigroup will pay $20.5 million and Deutsche Bank Securites will pay $145.5 million, according to the NCUA.
“We are fulfilling our statutory responsibility to secure maximum recoveries for credit unions and ensure that consumers remain protected,” NCUA Board Chair Debbie Matz said. “This settlement furthers our goal to minimize losses and thereby reduce the assessments that all credit unions will have to pay.”
She added that she appreciates the investment firms' willingness to step forward and settle potential claims to avoid litigation. In making the settlement, the companies did not admit to wrongdoing.
Losses from wholesale credit union failures are paid from the Temporary Corporate Credit Union Stabilization Fund. Expenditures from this fund must be repaid through assessments against all federally insured credit unions. Thus, recoveries such as this settlement reduce the amount of future assessments on credit unions, the NCUA said.
Since 2009, NCUA has assessed credit unions $3.3 billion to pay for losses associated with the five corporate credit union failures. Given the current settlement proceeds, projections for remaining assessments range between $1.8 billion and $6.1 billion that must be paid by 2021.
So far, the NCUA has filed four lawsuits seeking to recover damages from firms that sold mortgage-backed securities to corporate credit unions. The federal regulator claims that the firms misrepresented the security risk of those investments. It is seeking to recover $2 billion total from the Royal Bank of Scotland, RBS Securities, JP Morgan Securities, and Goldman Sachs in suits it has filed against those entities. The NCUA said that it expects to take an additional five to 10 actions.
CUNA President/CEO Bill Cheney said the settlements were good news.
"I applaud the agency's efforts to pursue recoveries from these firms," Cheney said, according to CUNA News Now.
"NCUA has appropriately taken a leading role in pursuing these entities and the agency's efforts will help reduce the corporate credit union stabilization costs that credit unions would have otherwise had to pay. The actions announced by the agency were the result of out-of-court settlements," CUNA"s General Counsel Eric Richard explained. "Settlements of this type always involve judgment calls about the uncertainty of how litigation will turn out versus compromising the full extent of the claim. While the settlement did not result in admission of guilt from the banks, it has resulted in recoveries that will help contain credit union costs," he added.