WASHINGTON—Experts are divided over whether a U.S. Supreme Court move earlier this week will impact corporate credit union assessments.
The banks being sued by NCUA have contended that federal securities law imposes a firm three-year deadline for suits—a deadline they say the NCUA missed. A federal appeals court in Denver disagreed, citing a provision in a 1989 law that extends the time for a government regulator to sue on behalf of a failed financial institution.
In ordering reconsideration this week, the justices pointed to a June 9 decision in a Supreme Court case involving environmental suits.
NCUA declined to speak to Credit Union Journal about the recent Supreme Court ruling, noting that the agency does not comment on pending litigation.
If the lower court reverses its ruling, some industry analysts say it could increase assessment costs for the Temporary Corporate Credit Union Stabilization Fund (TCCUSF).
NCUA has settled claims worth more than $335 million with Citigroup, Deutsche Bank Securities, HSBC and Bank of America. With the JPMorgan Chase settlement, NCUA said it has now recovered more than $1.75 billion from large banks and investment firms.
NCUA also has lawsuits pending against several other large banking companies, including Barclays Capital, Credit Suisse, Goldman Sachs, RBS Securities, UBS Securities and Morgan Stanley.
The agency has sued 13 other banking companies, alleging violations of federal and state anti-trust laws by their manipulating interest rates in the London Interbank Offered Rate (LIBOR) system.
"The Supreme Court's decision does not close the book on these cases, nor does it even pass judgment on whether the Tenth Circuit got it right when it said these cases could proceed despite the limitations period," said Eric Richard, CUNA executive vice president and general counsel in a statement. "Rather, the Supreme Court asked the Tenth Circuit to look at its decision in the context of another decision the Supreme Court issued last week in a completely different area of law, the environmental context."
Richard added that the Tenth Circuit can still decide that it made the right decision the first time.
"NCUA still has many other opportunities, both before the Tenth Circuit and Supreme Court if necessary, to argue that these cases should proceed," he noted. "Even if NCUA is ultimately unsuccessful on this issue, there are still other claims against these same defendants that should be unaffected. Those other claims would still offer the possibility of recovering money on behalf of credit unions."
NCUA's cases against issuers of mortgage-backed securities are hugely important to the credit union system, continued Richard. "We commend NCUA for leading the way for federal financial regulators and bringing in more than $1.75 billion in funds for credit unions to date."
Bob Freedman, senior partner at Silver, Freedman, Taff & Tiernan LLP in Washington, believes the pending cases are in jeopardy.
"NCUA argued that its right to bring an action against the banks that sold securities to the corporates was not barred by the absolute three-year filing deadline established by Congress in Section 13 of the 1933 Act and the lower court agreed with them," said Freedman. "Now, based on a recent Supreme Court decision, the lower court has been instructed to take another look at the issue.
"I don't know what the end result will be," continued Freedman, "but based on the recent Supreme Court decision there's a real possibility that the NCUA could lose its right to collect on all these remaining cases."
Freedman added that if NCUA loses its right to collect on the remaining lawsuits, "someone will have to make up the shortfall."
Peter Duffy, managing director at Sandler O'Neill, New York, says it is difficult to project what the implication will be on credit unions and future corporate assessments.
"We don't have enough information to determine how a lack of recoveries from the remaining lawsuits will affect the overall math of the legacy assets," said Duffy. "But I know NCUA has been consistent in saying they are not relying on recoveries from lawsuits in the math they are using to project what assessments will be."
In March
No assessments are scheduled this year.
The drop was largely due to the JPMorgan Chase settlement, the agency reported, bringing the current projected range for total future remaining assets between negative $2 billion and negative $600 million.
At the end of the second quarter of 2013, that range was negative $200 million to $1.6 billion, NCUA shared.
The agency said the overall rate of change is consistent with recent trends, as well as continued improvement in the legacy assets underlying the NCUA Guaranteed Note program.
"The more than $1.75 billion in recoveries from NCUA's litigation has certainly brought relief to credit unions, but it's also good to see the general trends continuing," NCUA Board Chairman Debbie Matz
However, a source, asking for anonymity, pointed out a bogey on the horizon that the loss of future lawsuit recoveries could make bigger.
The
