NCUA said it has entered into an agreement under which investment bank Barclay's Capital will pay $325 million to resolve claims arising from losses related to the purchase of faulty residential mortgage-backed securities by corporate credit unions.
NCUA said it will use the net proceeds to reduce Temporary Corporate Credit Union Stabilization Fund assessments charged to federally insured credit unions in order to pay for the losses caused by the failure of five corporate credit unions.
"In order to help minimize losses and future costs to the credit union system, NCUA is committed to pursuing recoveries against financial firms we maintain contributed to the corporate crisis," NCUA board chairman Debbie Matz said in statement. "The agency has a statutory obligation to secure recoveries for credit unions and ensure that consumers remain protected."
In September 2012, NCUA had originally filed a lawsuit related to RMBS against Barclay's, the U.S. subsidiary of the British financial services firm. In that filing, NCUA's suit alleged that Barclay's violated federal and state securities laws through misrepresentations related to the sale of MBS to U.S. Central Federal Credit Union and Western Corporate Federal Credit Union. The price paid for the securities by US Central and Western Corp was in excess of $555 million — and both corporate credit unions subsequently failed.
Matz specifically noted during that time that Barclay's issued faulty disclosures on securities underwritten by the firm — resulting in the collapse of the two aforementioned corporate credit unions.
As liquidating agent for US Central and WesCorp, NCUA had a statutory duty to seek recoveries from responsible parties in order to minimize the cost of any failure to its insurance funds and the credit union industry.
Once the current settlement is completed, NCUA will dismiss pending suits against Barclay's in federal district courts in New York and Kansas. Barclay's also will not have to admit any fault in the settlement.
Meanwhile, NCUA continues to pursue similar litigation in federal courts in New York, Kansas and California against various other financial firms, including Goldman Sachs, UBS Securities, Credit Suisse and Morgan Stanley, related to their sale of faulty securities that caused the collapse of five corporate credit unions.
In addition, NCUA also has other litigation pending against securities firms alleging violations of state and federal anti-trust law by the manipulation of interest rates through the London interbank offer rate system. NCUA also has pending suits against financial firms alleging their failure to perform their duties as trustees of RMBS trusts.