WICHITA, Kan. – NCUA filed another civil suit this afternoon against a Wall Street bank, this time naming Credit Suisse Securities USA, as chief defendant, alleging that its sale of $715 million of faulty residential mortgage –backed securities helped caue the collapse of three corporate credit unions, U.S. Central FCU, WesCorp FCU and Southwest Corporate FCU.
NCUA claims the investment bank negligently packaged subprime mortgages into MBS that failed soon after the three corporate giants purchased them, helping cause their collapse in 2009 and 2010. The suit was filed in the U.S. District Court for Kansas because U.S. Central, the one-time $52 billion central bank for credit unions, was based in Lenexa, Kan.
Today’s suit follows similar actions brought against Wall Street giants JP Morgan Chase, Goldman Sachs & Co., RBS Securities, Wells Fargo, UBS Securities and Barclay’s Capital over the failure of the three corporates and two others, Members United Corporate FCU and Constitution Corporate FCU. NCUA has reached out-of-court settlements with three others, Citibank, HSBC and Deutsche Bank.
“Credit Suisse is one of several firms that sold faulty securities to corporate credit unions, which led to their collapse,” said NCUA Chairman Debbie Matz. “These Wall Street firms ran a bait and switch operation, and the effects were felt not only in credit unions, but throughout the financial industry.”
The five corporates purchased some $50 billion in MBS during the height of the mortgage boom.
The failure of the five corporates—banker’s banks for credit unions—created losses of some $20 billion to the credit union system.
NCUA’s complaint alleges Credit Suisse made numerous misrepresentations and omissions of material facts in the offering documents of the securities sold to the failed corporate credit unions. The complaint also alleges systemic disregard of the underwriting guidelines stated in the offering documents. These misrepresentations caused the credit unions to believe the risk of loss was minimal, when in fact the risk was substantial.