NCUA Files New Suit Against JPMorgan Over Collapse of Corporate CUs
NCUA has opened a new battle with Wall Street by filing a new suit over the sale of faulty mortgage-backed securities to the failed corporates—the third one naming JPMorgan Chase as the defendant and ninth suit against a Wall Street entity.
According to Bloomberg News, representatives of New York-based JPMorgan didn’t immediately return a call for comment on the lawsuit.
The latest suit is over MBS sold to U.S. Central FCU, WesCorp FCU and Southwest Corporate FCU by Washington Mutual Bank, the failed banking giant that was acquired with all of its liabilities by JPMorgan in 2008. NCUA has also filed suit against JPMorgan for MBS sold to the corporates by Bear Stearns & Co., the investment bank it acquired in 2008, as well as MBS sold to the corporates by Morgan’s own investment bankers. In all, NCUA is seeking recompense from JPMorgan for almost $7 billion of MBS that went sour soon after they were sold to the now-failed corporates.
The corporates were bankers’ banks for credit unions and provided wholesale services like check clearing, emergency loans and investments for regular credit unions. U.S. Central, which at one-time had $52 billion in assets, was the corporate for other corporate credit unions, similar to a central bank for credit unions. WesCorp, based in the Los Angeles suburb of San Dimas, Calif., was the next biggest, with $34 billion of assets at one time. Southwest had more than $14 billion at its peak.
“The damage caused by the actions of firms like Washington Mutual has been extremely expensive to contain and repair, and that job isn’t finished, yet,” said NCUA chairman Debbie Matz.
NCUA has now filed suits against nine Wall Street banks claiming the banks violated their own underwriting standards by packaging subprime mortgages into MBS that failed soon after they were purchased by U.S. Central and WesCorp and Southwest Corporate, as well as Members United Corporate FCU and Constitution FCU.
Three Wall Street banks have avoided civil litigation by agreeing to out-of-court settlements paying NCUA a total of $170 million to settle similar claims over the corporate failures.
NCUA is said to be reviewing an additional suit.
In liquidating the five corporate failures NCUA was left with $50 billion of mortgage- and other asset-backed securities on which it projects losses of as much as $20 billion. NCUA hopes to recoup some of those losses through its civil suits against the Wall Street banks.
The latest suit, like most of the others, was filed in the U.S. District Court for the District of Kansas, which has jurisdiction over Lenexa, Kan.-based U.S. Central.