UBS to Pay NCUA $36.8 Million in Latest Settlement

ALEXANDRIA, Va. – For the second day in a row, the National Credit Union Administration announced a significant legal victory against a Swiss banking giant – with UBS AG being ordered to pay the regulator $36.8 million in interest on Friday – leading to the possibility of a rebate for credit unions related to Temporary Corporate Credit Union Stabilization Fund assessments.

In late February, NCUA accepted a judgment for $33 million, plus pre-judgment interest, from UBS. On Friday, the interest portion of the bill came due. UBS now is on the hook for $69.8 million, and still is liable for attorneys' fees and expenses in an amount to be determined by agreement between the parties or by the court.

The case in question involves residential mortgage-backed securities purchased by Members United and Southwest Corporate Credit Unions. The NCUA board initiated litigation as liquidating agent for the failed corporate CUs.

On Thursday NCUA issued a remarkably similar press release regarding its RMBS case against Credit Suisse. Just three weeks after NCUA accepted a preliminary, $29 million offer of judgment from Credit Suisse – also to resolve claims arising from losses related to purchases of RMBS purchased by Members United and Southwest Corporate – a court determined prejudgment interest to be $21.3 million, pushing the total Credit Suisse owes the regulator to $50.3 million.

As in the UBS case, Credit Suisse still is liable for attorneys' fees and expenses in an amount to be determined.

NCUA still has litigation pending against UBS in federal court in Kansas for sales of faulty residential mortgage-backed securities to U.S. Central and WesCorp Corporate Credit Unions, and it has litigation pending in federal court in Kansas against Credit Suisse for sales of faulty RMBS to U.S. Central and Southwest Corporate CUs.

The regulator also has lawsuits pending against several other firms based on the sale of faulty securities. NCUA likewise has pending litigation against various RMBS trustees and LIBOR banks related to corporate credit union losses. NCUA noted it was the first federal financial institutions regulator to recover losses from investments in these securities on behalf of failed financial institutions.

Earlier this week, when NCUA revealed its share of a multi-party settlement with Goldman Sachs totaled $575 million, the regulator said it had obtained more than $3 billion in legal recoveries in securities cases. Net proceeds are used to pay claims against five failed corporate credit unions, including those of the Temporary Corporate Credit Union Stabilization Fund. NCUA said recoveries by the Stabilization Fund reduce the likelihood of assessments charged to federally insured credit unions to pay for the losses caused by corporate credit union failures.

Possible Rebate?

"Part of NCUA's comprehensive strategy for resolving the corporate crisis has been an aggressive litigation effort to secure recoveries from the Wall Street firms whose sale of faulty securities precipitated the crisis," Debbie Matz, NCUA's board chairman, said in a statement Friday. "Because of our ongoing efforts to hold responsible parties accountable, we are minimizing net losses to credit unions and should ultimately be able to provide a future rebate to credit unions for their Temporary Corporate Credit Union Stabilization Fund assessments."

Until recently, NCUA has said recoveries from its various legal actions meant it was unlikely for credit unions to pay future assessments to the TCCUSF. In Thursday's and Friday's press releases the regulator discussed the possibility of a rebate. However, no rebate is possible until 2021 at the earliest, after the Stabilization Fund sunsets. At that time, borrowings from the U.S. Treasury would have to be repaid prior to any rebate going to credit unions.