WASHINGTON — Settlements related to court fights over private-label mortgage-backed securities are significantly boosting the bottom lines at a few Federal Home Loan banks.
Settlements made up 80% of the $419 million of net income reported by the Federal Home Loan Bank of Des Moines for the first half of the year, totaling $337 million. They also helped increase the Chicago bank's total $104 million net income in the second quarter by $38 million.
The San Francisco Home Loan Bank, meanwhile, reported net income of $231 million in the first quarter thanks to a $211 million settlement in private-label litigation.
Though the settlements are acting as a benefit to some Home Loan banks, they are hard to predict, making it difficult to know how they will affect future earnings.
"There is no way to determine when or if those lawsuits will settle. Trial dates are tentatively set for later this year," a spokeswoman for the Des Moines bank said.
The Des Moines bank has seen the largest benefit so far, in part because it acquired the rights to the Seattle Home Loan bank's litigation interests when the two banks merged last year.
The bank has used the extra funds to build its capital buffer.
"The Federal Home Loan Bank of Des Moines' financial performance remains strong," Michael Wilson, its president and CEO, said in a press release. "We are delivering on our member value proposition, which is to be a reliable source of liquidity and funding. The growth in our retained earnings, attributable in large part to our private-label MBS settlements, provides a buffer to ensure we maintain the par value of the stock members have entrusted to us."
Retained earnings at the bank were $1.2 billion at June 30, up from $801 million at the end of 2015.
The Boston Home Loan bank has also seen benefits from private-label settlements, but its returns declined significantly in the second quarter. It received $19.6 million due to settlements in the second quarter, a far cry from the $134.7 million it collected in the same period a year earlier.
As a result, net income dropped to $47.5 million in the second quarter from $149.6 million a year earlier.
But the Boston bank is continuing to pursue litigation against private-label MBS issuers and sellers, according to its first-quarter securities filing.
"We continue our private-label MBS litigation against the following entities and/or their affiliates and subsidiaries and/or entities under their control or controlled by affiliates or subsidiaries thereof: Barclays Capital Inc.; Credit Suisse (USA), Inc.; Impac Mortgage Holdings, Inc.; Morgan Stanley; Nomura Holding America, Inc.; RBS Holdings USA Inc.; and UBS Americas Inc," the bank said.
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Corrected August 5, 2016 at 11:08AM: This story previously stated that the San Francisco Home Loan Bank would have experienced a first quarter loss without its private-label litigation settlement. That is not true. It would have recorded a small profit.