The National Credit Union Administration (NCUA) last week indicated it would proceed with litigation against major Wall Street financial institutions unless some $50 billion in MBS are refunded.
NCUA declined to comment on the talks, but Goldman Sachs said in its annual report it and NCUA have reached an agreement on the relevant statutes of limitation for the potential claims.
The securities were purchased by five failed corporate credit unions now in conservatorship. The agency said that the sellers of those securities-in addition to Goldman Sachs, Merrill Lynch (now part of Bank of America), Citigroup, and JP Morgan Chase & Co-misrepresented the risks of the bonds.
Those $50 billion in securities are now valued at approximately $25 billion.
Credit Union Journal reported in February that the agency was likely to file civil charges against third-party entities involved in the failure of WesCorp Federal Credit Union, expanding the agency's efforts to recover some of the $7 billion of losses estimated from the failure of the one-time $34 billion corporate.
News out of NCUA last week seemed to indicate it was expanding the scope of those recovery efforts beyond just California-based WesCorp.
NCUA has completed several offerings of its federally guaranteed NCUA Guaranteed Notes, comprised of cash flows on the toxic WesCorp bonds and those owned by the four other corporate failures: U.S. Central, Members United, Southwest Corporate, and Constitution Corporate Federal Credit Union.
Sources indicated last week and numerous media outlets reported that NCUA had told the four Wall Street firms to fully refund the value of the bonds at time of purchase, or face a lawsuit that will seek to recover the investments.
NCUA also is in talks with Bank of America over MBS Countrywide Mortgage and Merrill Lynch, subsequently acquired by the banking giant, sold to the failed corporates, sources told Credit Union Journal. A report by NCUA's Office of the Inspector General found that MBS sold by Countrywide to WesCorp FCU were the major reason for the failure of the one-time $34 billion corporate.
The claims are expected to be similar to those included in several suits brought by Federal Home Loan Banks against Goldman, Countrywide and several other Wall Street banks, claiming fraud in the sale of the MBS.