A federal judge last week directed National Credit Union Administration (NCUA) and Royal Bank of Scotland (RBS) to begin negotiations aimed at settling NCUA’s $629 million claims over the failure of WesCorp Federal Corporate Union, one of five suits NCUA has filed against Wall Street banks over the sale of risky mortgage-backed securities to corporate credit unions.
The order requires NCUA and the unit of RBS to appear before a retired judicial officer or other private or non-profit dispute resolution body.
The order was signed by U.S. Judge George Wu, who is also presiding over NCUA’s multi-billion dollar suit against executives of WesCorp., the one-time $34 billion corporate.
NCUA, which has also sued RBS in Kansas over MBS sales of U.S. Central Federal Credit Union, claims the sellers and underwriters of the questionable securities made numerous material misrepresentations to WesCorp in the offering documents.
These misrepresentations caused WesCorp to believe the risk of loss associated with the investment was minimal, when in fact the risk was substantial.
The MBS experienced dramatic, unprecedented declines in value, effectively rendering WesCorp insolvent. The combined suits are the culmination of lengthy investigations into the circumstances surrounding the purchases of these securities.
NCUA has also filed suit against JPMorgan Chase, Goldman Sachs and Wachovia, now a unit of Wells Fargo, for their alleged roles in the failures of the corporates. The agency has reached separate out-of-court settlements on similar charges against Citigroup and UBS.
The failure of WesCorp is projected to cost as much as $7 billion to resolve. The U.S. Central failure is projected to cost another $5 billion. The costs are being paid by all 7,200 federally insured credit unions through annual payments assessed by NCUA.