The National Credit Union Administration (NCUA) filed another suit against a Wall Street bank this afternoon, this one naming Barclays.
NCUA alleged the sale of faulty MBS by Barclays to U.S. Central Federal Credit Union and WesCorp Federal Credit Union contributed to the 2009 collapse of the two corporate credit union giants.
The suit, filed in U.S. District Court for the District of Kansas, alleged the Wall Street bank negligently packaged subprime mortgages into MBS and the securities subsequently defaulted in rapid time. The price paid for the securities by US Central and WesCorp exceeded $555 million.
“Trust and accountability are two cornerstones of our financial system,” said NCUA Chairman Debbie Matz. “As clearly outlined in our complaint, Barclay’s violated that trust by issuing faulty disclosures on securities underwritten by the firm. As a result, two corporate credit unions collapsed, and the entire credit union industry experienced a crisis.”
The suit comes with an irony because Barclays was the underwriter for $28 billion worth of NCUA Guaranteed Notes NCUA sold last year to investors to finance the corporate bailout.
NCUA has filed similar claims against JPMorgan Chase, Goldman Sachs, RBS Securities, UBS Securities and Wachovia Securities, now a unit of Wells Fargo. NCUA has settled similar claims out of court with Citibank, HSBC and Deutsche Bank.
The collapse of U.S. Central and WesCorp and three other corporates-bankers’ banks for credit unions — are projected by NCUA to cost credit unions as much as $20 billion to resolve. The three other corporate failures were Members United Corporate Federal Credit Union, Southwest Corporate Federal Credit Union and Constitution Corporate Federal Credit Union.
Corporate credit unions are credit unions for regular credit unions-similar to bankers' banks--and U.S. Central was the $52 billion corporate for other corporate credit unions. WesCorp was the next biggest corporate with $34 billion in assets at its peak.
NCUA’s complaint alleges Barclay’s made numerous misrepresentations and omissions of material facts in the offering documents of the securities sold to the failed corporate credit unions. The complaint also alleges systemic disregard of the underwriting guidelines stated in the offering documents. These misrepresentations caused US Central and WesCorp to believe the risk of loss was minimal, when in fact the risk was substantial.