Largest Banks Face Suits by Credit Unions
Four of the nation’s largest banks are facing lawsuits by the national Credit Union Association (NCUA) and possibly regulators if they do not refund roughly $50 billion that five wholesale or corporate credit unions used to purchase bonds backed by risky subprime mortgage loans, as reported in the Wall Street Journal. The banks involved are Goldman Sachs, Merrill Lynch, Citigroup and JP Morgan Chase. The wholesale/corporate credit unions that made the purchases provided investment and other services to retail member owned unions across the country. Following the massive losses in mortgage backed securities (MBS), the wholesale/corporate credit unions were taken over by the NCUA.
Generally, these wholesale credit unions put up between 31% and 74% of their total investments in the mortgage backed securities (MBS) and suffered losses of up to 31% of their portfolios. The retail credit unions, which hold some $680 billion in member deposits, will be forced to pay a fee to rebuild the industry’s insurance fund meaning that the losses will ultimately be passed down to the member depositors.