NCUA Reaches Settlement in Lawsuits Against Citigroup, Deutsche Bank Securities

The National Credit Union Administration (NCUA) reached separate settlements this week with Citigroup and Deutsche Bank Securities in lawsuits regarding the sale of residential mortgage-backed securities to five corporate credit unions that failed. The first round of suits was filed in June, and the settlements make the NCUA the first regulatory agency to recover losses on behalf of financial institutions that failed as a result of investment in these securities.

Citigroup agreed to pay the NCUA $20.5 million to lessen the losses associated with the five credit union failures, and Deutsche Bank Securities will pay $145 million. The settlements do not involve Deutsche Bank Securities or Citigroup admitting any fault.

Losses associated with corporate credit union failures are paid from the Temporary Corporate Credit Union Stabilization Fund (TCCUSF). Anything taken from this fund must subsequently be repaid through assessments against all federally insured credit unions. The NCUA has said that it will use the net proceeds from the settlements to reduce the amount of future assessments on credit unions.

“The appropriateness of the settlement as measured against a prolonged adjudication, along with the risks that would occur over time, still needs analysis,” Northwest Credit Union Association CEO John Annaloro said. “It seems small when compared to the damage done, total cumulative losses, and resulting re-regulation of the entire credit union sector. Regardless, it is good that NCUA is using the courts.”

The NCUA also has lawsuits pending against J.P. Morgan Securities, Royal Bank of Scotland (RBS) Securities and Goldman Sachs for not fully disclosing the risks when it sold RMBs to the corporates. The agency claims that the companies did not fully disclose the risks associated with the residential mortgage-backed securities at the time of sale, and Constitution Corporate, Members United, Southwest Corporate, U.S. Central, and Western Corporate all suffered significant losses when the housing market collapsed and the value of the securities plunged.

The NCUA then had to step in to salvage the five corporates using a loan from the U.S. Treasury Department, which credit unions are repaying through yearly assessments.

“NCUA to date has received a total of $165.5 million in settlement proceeds,” NCUA Board Chairman Debbie Matz saids. “These settlements further our goal to minimize losses and thereby reduce the assessments that all credit unions will have to pay. NCUA will continue to fulfill our statutory responsibility to secure maximum recoveries for credit unions and ensure that consumers remain protected.”


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