NCUA recovers $225M in Morgan Stanley RMBS settlement

December 11, 2015

ALEXANDRIA, Va. (12/11/15)--Losses related to Morgan Stanley’s sale of allegedly faulty residential mortgage-backed securities led to a $225 million settlement between the National Credit Union Administration and Morgan Stanley Thursday. The settlement brings total recoveries for the NCUA to more than $2.45 billion.

“NCUA continues to pursue recoveries on behalf of the corporate credit unions against the financial firms we maintain contributed to the corporates’ losses,” NCUA Chair Debbie Matz said. “These actions fulfill our statutory obligation to act in order to minimize costs to the credit union system resulting from the crisis. They also promote accountability and ensure consumers remain protected.”

CUNA Chief Policy Officer Bill Hampel commented, "We welcome the news that NCUA has settled another suit related to the corporate stabilization fund.  This will increase the amount that is ultimately refunded to credit unions, although those refunds are unlikely to occur for a few years."

According to NCUA Associate General Counsel John Ianno, the agency worked closely with the U.S. Department of Justice during the litigation.

The settlement covers claims asserted in 2013 by the NCUA board on behalf of U.S. Central FCU, Western Corporate FCU, Members United Corporate FCU and Southwest Corporate FCU.

The NCUA will dismiss pending suits against Morgan Stanley in federal district courts in New York and Kansas. Morgan Stanley does not admit fault in the settlement.

Net proceeds from this settlement and others are used to pay claims against the failed corporate credit unions, including those of the Temporary Corporate Credit Union Stabilization Fund. Stabilization Fund recoveries reduce borrowings from the U.S. Treasury and eliminate the need for assessments to federally insured credit unions.

According to the NCUA, it continues to pursue litigation in federal courts in New York, Kansas and California against financial firms, including RBS, Goldman Sachs, UBS and Credit Suisse, based on the sale of faulty securities that caused the collapse of five corporate credit unions.

The agency, on behalf of the failed corporates, has other litigation pending against securities firms alleging violations of state and federal anti-trust law by 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 residential mortgage-backed securities trusts.