The National Credit Union Administration on Monday said it received $575 million as its part of a $5 billion settlement with Goldman Sachs.
NCUA joined the U.S. Department of Justice and other governmental plaintiffs in the settlement, which concludes years of litigation against the investment firm. The settlement resolves two lawsuits filed by NCUA as liquidating agent for three corporate credit unions – U.S. Central, WesCorp and Southwest – against Goldman Sachs for losses incurred as a result of the purchases of the faulty securities by the corporate credit unions, which later failed.
Seven years ago, NCUA noted, the credit union system faced a crisis when numerous faulty mortgage-backed securities purchased by five corporate credit unions plunged in value. These losses led to the failure of those corporate credit unions and left the entire credit union system with billions of dollars in losses.
When purchased by the failed corporate credit unions, the vast majority of the securities issued by Goldman Sachs had triple-A ratings, but they have since been significantly downgraded.
Following the completion of the settlement with Goldman Sachs, NCUA now has recovered more than $3 billion from Wall Street firms that sold faulty mortgage-backed securities to five corporate credit unions.
Net proceeds from recoveries obtained by the agency are used to pay claims against five failed corporate credit unions, including those of the Temporary Corporate Credit Union Stabilization Fund. NCUA said it was the first federal financial institutions regulator to recover losses from investments in faulty securities on behalf of failed financial institutions.
Monday’s news continues a string of successes for NCUA in 2016, as less than three weeks ago it announced it
“Credit unions are benefitting from an aggressive litigation strategy NCUA continues to follow in order to hold responsible parties accountable,” Debbie Matz, chairman of the NCUA board, said in a statement. “NCUA remains committed to fulfilling its statutory responsibilities to protect the credit union system and to pursuing recoveries against Wall Street firms that contributed to the corporate crisis. Our goal is to minimize net losses of the corporate crisis and provide a future rebate to credit unions.”
“NCUA’s board extends our thanks and appreciation to the attorneys here at the agency and at the Department of Justice who worked closely together to resolve this litigation,” Matz added.
NCUA still has litigation pending against several other financial institutions, including Credit Suisse, RBS Securities, and UBS Securities, alleging they sold faulty mortgage-backed securities to four corporate credit unions: WesCorp, U.S. Central, Southwest and Members United. The agency recently announced it had accepted offers of judgment from Credit Suisse and UBS with respect to litigation filed in New York on behalf of Southwest and Members United, although that litigation has not yet been dismissed. Other claims against those banks remain in Kansas and California. NCUA also has pending litigation against various RMBS trustees and LIBOR banks related to corporate credit union losses.
Carrie Hunt, executive vice president of government affairs and general counsel for the National Association of Federal Credit Unions, said after announcement of the settlement, “NAFCU and our members appreciate NCUA’s persistence in seeking recoveries relative to faulty mortgage-backed securities sold to corporate credit unions. We continue to urge the agency to remain steadfast in its legal recovery efforts and to be completely transparent as to how the monies recovered will be returned to credit unions.”
In January, Goldman Sachs Group announced it would pay $5.06 billion in fines and redress to resolve actual and potential claims by NCUA, the New York and Illinois attorneys general, the Justice Department and the Chicago and Seattle Federal Home Loan Banks over faulty residential mortgage-backed securities. Specifically, the firm said it would pay a $2.385 billion civil money penalty, $875 million in cash payments and $1.8 billion in consumer relief. At the time, the details did not specify how the $875 million in cash payments would be distributed. Details were announced by the Justice Department Monday.
NAFCU noted natural person credit unions have paid $4.8 billion as part of the corporate credit union stabilization program.
