ROYAL Bank of Scotland has agreed to pay £84 million to a US regulator to resolve claims it sold toxic residential mortgage-backed securities to two credit unions that later collapsed.

The National Credit Union Administration has confirmed the settlement which has come two years after it filed the lawsuit against the Edinburgh-based bank and other financial institutions in New York on behalf of two defunct credit unions, Southwest Corporate and Members United Corporate.

And it indicated there is likely to be more to come.

“NCUA has a statutory obligation to secure recoveries for credit unions and ensure that consumers remain protected,” NCUA board chairman Debbie Matz has said on the settlement with RBS.

 

The Herald:

The lawsuit filed by the NCUA, which regulates, charters and supervises federal credit unions, against various banks was over the sale of nearly $2.4 billion in mortgage-backed securities to Southwest and Members United.

The corporate credit unions subsequently became insolvent, were later liquidated as a result of losses from the faulty bonds, which caused significant losses to the credit union system, according to the NCUA.

NCUA had claimed the taxpayer-controlled bank sold the two credit unions about $300 million of such risky investments.

The agency previously recovered more than $1.7 billion from several banks, including JPMorgan Chase & Co, which agreed to pay $1.4 billion in November 2013; Bank of America Corp, Deutsche Bank AG; Citigroup Inc; and HSBC Holdings Plc.

NCUA said it still had litigation outstanding in federal courts in Kansas and California against RBS for sales of faulty residential mortgage-backed securities to US Central and Wescorp. NCUA was the first federal regulatory agency for depository institutions to recover losses from investments in these securities on behalf of failed financial institutions.

Ms Matz added: “We can assure stakeholders that we will continue to aggressively pursue recoveries against Wall Street firms that contributed to the corporate crisis."

Each recovery as well as our ongoing lawsuits further NCUA’s goal of minimising the losses of the corporate crisis and future costs to credit unions.”

The National Association of Federal Credit Unions celebrated the latest recovery by the NCUA.

The organisation’s senior vice president of government affairs and general counsel, Carrie Hunt, said: “We appreciate NCUA’s persistence and applaud the recovery of the funds on the sale of faulty securities that led to the downfall of five corporate credit unions,” said.

She added: “NAFCU strongly encourages the agency to not only continue its vigilant legal recovery campaign, but we also urge NCUA to be fully transparent with the industry as to how these recoveries will eventually be refunded to credit unions.”

The NCUA said about the agreement with RBS: "The National Credit Union Administration today announced acceptance of an offer of judgment for $129.6 million from the Royal Bank of Scotland to resolve claims arising from losses related to purchases of residential mortgage-backed securities by Members United and Southwest corporate credit unions.”

RBS declined to comment.

In July, RBS chief executive warned of more charges for past wrongdoing and a "further and faster" overhaul after another £1.3 billion hit for banking scandals sent it into the red.

Taxpayer-backed RBS posted half-year losses of £153 million against profits of £1.4 billion a year ago after setting aside the hefty charge and as it took after £1.5 billion in restructuring costs.