e-Weekly

June 22, 2011

NCUA suing securities firms in attempt to recover billions
The National Credit Union Administration (NCUA) has filed two suits against securities firms alleging violations of federal and state securities laws and misrepresentations in the sale of hundreds of securities. Additional law suits may follow in order to recover losses from the purchase of securities that caused the failures of five, large wholesale credit unions.

As liquidating agent for the failed corporate credit unions, NCUA has 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. The first two suits were filed, on June 20, against J.P. Morgan Securities, LLC, and RBS Securities, Inc.

“NCUA has a responsibility to do everything in our power to seek maximum recoveries from those involved in the issuing, underwriting, and sale of the faulty securities that resulted in the failures of five of the largest wholesale credit unions,” said NCUA Board Chairman Debbie Matz. “NCUA’s legal actions are based on ongoing investigations of individuals and entities responsible for selling these securities to the failed institutions. By these actions we intend to hold responsible parties accountable. The first two actions involve damages in excess of $800 million. We expect to file additional actions and seek a total amount of damages in the billions of dollars. Those who caused the problems in the wholesale credit unions should pay for the losses now being paid by retail credit unions.”

NCUA’s suits claim the sellers, issuers, and underwriters of the questionable securities made numerous material misrepresentations in the offering documents. These misrepresentations caused the corporate credit unions that bought the notes to believe the risk of loss associated with the investment was minimal, when in fact the risk was substantial. The corporate credit unions invested in mortgage-backed securities that experienced dramatic, unprecedented declines in value, effectively rendering the institutions insolvent. These suits are the culmination of lengthy investigations into the circumstances surrounding the purchases of these securities.

NCUA officials are also discussing the losses with a number of other sellers, issuers and underwriters. If NCUA is unable to reach reasonable settlements on behalf of the liquidated credit unions with these additional parties, the agency will likely bring additional lawsuits.

Any recoveries from these legal actions would reduce the total losses resulting from the failure of the five corporate credit unions. Losses from those failures must be paid from the Temporary Corporate Credit Union Stabilization Fund or the National Credit Union Share Insurance Fund. Expenditures from these funds must be repaid through assessments against all federally insured credit unions. Thus, any recoveries would help to reduce the amount of future assessments on credit unions.

Lending Redefined – CU Direct’s Credit Union Lending Conference --September 14-15, 2011
CU Direct will be hosting what they are billing as an all new Credit Union Lending Conference. The conference will be held on September 14 and 15 in Washington, D.C.

The conference is designed to help gain valuable insight into all aspects of today’s lending marketplace, as well as keys to sustaining successful lending programs over the long-term. It is cast as an opportunity for credit union staff and officials to learn, network, and interact. Topics will be presented that offer insight into the latest industry thinking and perspectives on the lending marketplace as well as a broad spectrum of industry topics, from business intelligence, portfolio management, and credit union efficiencies, to marketing and risk management.

Click here to register online. Early Bird Registration expires July 1, 2011! Be sure to enter the code earlybird to take advantage of this special discount. If you would like additional information on the lending conference, please contact CU Direct’s Events Department at 877-744-2835, ext. 2308 or via email at events@cudirect.com.

Hyland suggests NCUSIF reserve level review
The Credit Union National Association (CUNA) has commended National Credit Union Administration (NCUA) board member Gigi Hyland's suggestion that the agency consider lowering the reserve levels of its National Credit Union Share Insurance Fund (NCUSIF).

CUNA suggested that any money that is no longer needed for NCUSIF reserve purposes should be transferred to the agency's Temporary Corporate Credit Union Stabilization Fund (TCCUSF). Doing so would reduce corporate assessments that are charged to credit unions, CUNA added.

Hyland raised the issue during the NCUA June open board meeting.

The NCUSIF reserves currently stand at $1.2 billion. The NCUA's Office of Examination and Insurance is currently analyzing the NCUSIF's reserve levels, and it will complete that analysis by the end of June.

The monthly insurance fund report, which was released during the meeting, noted that the TCCUSF brought in $7.5 million in earned revenues and $447,850 in operating expenses during May, resulting in a surplus of more than $7 million.

CAMEL Code credit unions accounted for 22% of total insured shares during May, and the NCUA reported that there were 377 CAMEL 4 and 5 credit unions and 1,791 CAMEL 3 credit unions. CAMEL 4 and 5 credit unions held $36 billion in shares and CAMEL 3 credit unions held $130 billion in shares during that month.

The NCUA will accept comment on its advanced notice of proposed rulemaking for 60 days after it is published in the Federal Register.