Banks Hit for Credit Union Ills-wsj 3/23 : 신용협동조합 중앙회 월스트리트 5개 대형은행 서브프라임 모기지 손해배상 소송

[처용]

By LIZ RAPPAPORT

Federal regulators are blaming Wall Street's biggest firms for the collapse of five institutions at the heart of the nation's credit-union industry and are seeking to recoup tens of billions of dollars in losses on securities that doomed the five.

View Interactive

In one of the broadest accusations that Wall Street helped cripple financial institutions during the crisis, the National Credit Union Administration, or NCUA, has threatened to sue several investment banks unless they refund over $50 billion of mortgage-backed securities sold to the five institutions, called wholesale credit unions.

The NCUA is accusing Goldman Sachs Group Inc., Bank of America Corp.'s Merrill Lynch unit, Citigroup Inc. and J.P. Morgan Chase & Co. of misrepresenting the risks of the bonds to wholesale credit unions, which loaded up on the bonds in their role of investing on behalf of retail credit unions, according to people familiar with the situation.

Regulators seized the five wholesale credit unions in 2009 and 2010, inheriting a pile of battered bonds now worth only about $25 billion, or half of their face value.

The wholesale credit unions, also known as corporate credit unions, are at the heart of the nation's credit-union system. They not only invest customer deposits but also provide services such as check clearing for nearly 8,000 "retail" credit unions—member-owned cooperatives that act somewhat like banks for firefighters, teachers and other workers who have something in common.

Such customers have a total of about $680 billion in deposits at credit unions.

The NCUA's hardball move is one of most aggressive steps yet by the U.S. government against the Wall Street securities factory that turned millions of mortgages into bonds, helping to inflate the housing bubble, whose collapse resulted in economic damage throughout the world.

View Full Image

Federal regulators are starting to flex their legal muscle against executives, directors and outsiders blamed for the demise of financial institutions during the crisis.

For instance, the Federal Deposit Insurance Corp.'s board has authorized the filing of lawsuits seeking to recover more than $3.5 billion from officers and directors at failed U.S. banks.

Last week, the FDIC accused the wives of Washington Mutual Inc.'s two top executives at the time of the big thrift's 2008 collapse of illegally moving cash and houses into trusts to shield the assets.

The executives called the suit seeking over $900 million baseless.

Tensions have been mounting for months between regulators and the securities firms that created or sold bonds backed by residential or commercial loans.

Of hundreds of bonds inherited by the NCUA in its rescues of wholesale credit unions, many were packed with subprime mortgages, interest-only loans or mortgages with other risky characteristics such as not requiring income verification.

The mortgage-backed securities often carried Triple-A credit ratings at first. Many now have junk ratings.

According to people familiar with the matter, agency officials recently issued an ultimatum to several firms that churned out the bonds: Either refund every dollar spent to buy the bonds when they were issued or face lawsuits seeking to recover the money.

In a securities filing this month, Goldman said the NCUA "has stated that it intends to pursue...on behalf of certain credit unions for which it acts as conservator" claims that offering documents for certain securities Goldman sold "contained untrue statements of material facts and material omissions."

In the filing, Goldman didn't specify which deals but indicated it has had discussions with the NCUA. A Goldman spokesman declined to comment.

Regulators also have told Bank of America Merrill Lynch, Citigroup and J.P. Morgan to refund losses suffered on their mortgage bonds, said people familiar with the matter. The companies declined to comment.

Other federal entities, including the FDIC, the Treasury and the Federal Reserve, hold similar securities as a result of various rescues. Those agencies haven't made broad legal threats to firms that created such bonds.

Last year, the FDIC took over as plaintiff in a suit filed by Riverside National Bank of Florida, a bank in Fort Pierce that, before failing in April, had stuffed its portfolio with 27 collateralized debt obligations, or slices of bond pools. Riverside accused more than a dozen firms of misrepresenting the CDOs' value. At the time the FDIC stepped in, it owned parts of over 250 CDOs bought by small banks that subsequently failed.

"There's plenty more litigation yet to come," said Jonathan Pickhardt, a partner at New York law firm Quinn Emanuel Urquhart & Sullivan LLP. "These are complex cases that take a long time to develop. New lawsuits will keep being brought up until the statutes of limitations run."

Mr. Pickhardt represents Heungkuk Life Insurance Co., which accused Goldman in a federal suit last week of misleading the Korean insurer about the risks of a CDO it purchased called Timberwolf. The Goldman spokesman declined to comment on the suit.

The collapse of the nation's wholesale credit-union system showed it made some of the same blunders that have sunk 350 banks and savings institutions since the start of 2007.

In November, an audit by the NCUA's inspector general concluded that the management and board of one wholesale credit union, called Western Corporate Federal Credit Union, or WesCorp, didn't properly manage the risk of its portfolio and bought too many mortgage securities.

At the end of 2007, 74% of WesCorp's investments were in mortgage-backed securities, according to regulators. WesCorp, of San Dimas, Calif., was seized by the NCUA in March 2009. By early 2010, its holdings had lost 31% of their value, according to the agency.

The inspector general's review didn't analyze the possible role of underwriters, issuers or credit-ratings firms.

After taking over more than $50 billion in mortgage-backed bonds from the failed credit unions, the NCUA last fall started selling bonds backed by those assets with a government guarantee. The rescue created four new corporate credit unions, but retail credit unions must pay a special fee to rebuild the industry's insurance fund, so losses on the bonds will be passed on to retail credit unions.

—Robin Sidel contributed
to this article.