Four of the nation’s largest Wall Street banks are facing threatened lawsuits by the National Credit Union Association (“NCUA”) and, possibly, regulators if they do not refund approximately $50 billion that five “wholesale” or “corporate” credit unions used to purchase bonds backed by risky subprime mortgage loans, according to a Wall Street Journal article by Liz Rappaport called “Banks Hit for Credit Union Ills.” NCUA accuses the banks of misrepresenting the risks associated with the mortgage-backed securities.
The Wall Street banks include Goldman Sachs, Merrill Lynch, Citigroup and JP Morgan Chase. The five wholesale/corporate credit unions that purchased the mortgage-backed securities provided investment and back-office services to retail member-owned credit unions across the country. After disastrous losses in mortgage-backed securities, the wholesale/corporate credit unions were taken over (along with their portfolios of mortgage-backed securities) by NCUA, which now acts as conservator.
The wholesale/corporate credit unions put between 31% and 74% of their total investments in mortgage-backed securities and sustained losses of between 10% and 31% of their portfolios. One such credit union, Western Corporate Federal Credit Union (or WesCorp), had 74% of its total portfolio in mortgage-backed securities resulting in a loss of 31% of its entire investment portfolio.
Retail credit unions, which hold $680 billion in member deposits, will have to pay a fee to rebuild the industry’s insurance fund, according to the article, so losses will ultimately be passed along to the member-depositors.
Recently, Heungkuk Life Insurance Co., filed a federal lawsuit against Goldman Sachs, accusing it of misleading the Korean insurer about the risks of a collateralized debt obligation (or CDO) it purchased called Timberwolf.
“There’s plenty more litigation yet to come,” an attorney for the insurer was quoted as saying, adding: “These are complex cases that take a long time to develop. New lawsuits will keep being brought up until the statutes of limitations run.”
Page Perry has over 125 years collective experience representing institutional and individual investors in securities-related litigation and arbitration all over the country. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 40 occasions.