National Credit Union Administration (NCUA) filed another suit last week against Royal Bank of Scotland (RBS) over MBS sold to WesCorp Federal Credit Union, the one-time $34 billion corporate that failed in 2009.
The suit is the third filed by NCUA against Wall Street banks over the failure of WesCorp and U.S. Central Federal Credit Union, following suits last month against JPMorgan Securities and RBS Securities, a unit of the British bank giant.
The latest action is seeking damages of $629 million, making a total of $1.5 billion in damages sought through the three suits.
"NCUA continues to carry out our responsibility to do everything reasonable in our power to seek maximum recoveries," said NCUA Board Chairman Debbie Matz. "By these actions we intend to hold responsible parties accountable. We expect to file additional actions, seeking damages in the billions of dollars. Those who caused the problems in the wholesale credit unions should pay for the losses now being paid by retail credit unions."
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.
NCUA's new suit against RBS claims the sellers and underwriters of the questionable securities made numerous material misrepresentations 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 mortgage-backed securities 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.
Any recoveries from these legal actions would reduce the total losses resulting from the failure of the five corporate credit unions. The five corporate credit unions placed into NCUA conservatorship and now liquidated are: U.S. Central, WesCorp, Southwest Corporate, Members United Corporate, and Constitution Corporate.