Federal regulators on Monday sued JPMorgan Chase & Co. and Royal Bank of Scotland PLC in a bid to recover about $840 million in losses on securities tied to high-risk mortgages that were purchased by five wholesale credit unions that failed in the financial crisis.
The National Credit Union Administration is accusing the securities divisions of JPMorgan and RBS of misrepresenting how risky of the securities were when they sold them to the corporate credit unions, which failed in 2009 and 2010.
Corporate credit unions provide financing and investment services to the much larger population of retail credit unions. Several of the 28 corporate credit unions in the U.S. sustained steep losses from the depressed value of the mortgage-linked securities they held.
The agency says the failure of the five _ U.S. Central, Western Corporate, Southwest Corporate, Members United Corporate and Constitution Corporate _ resulted from those losses. It seized the five credit unions, put them into conservatorship and liquidated them.
The agency has been negotiating with other Wall Street banks in an effort to reach settlements over the sales of risky mortgage securities, which the banks packaged and sold to investors at the height of the housing boom. The regulators could file suits against five to 10 other banks in the coming weeks if "reasonable" settlements aren't reached, putting the total amount of damages sought in the billions of dollars, the NCUA said.
"Those who caused the problems in the wholesale credit unions should pay for the losses now being paid by retail credit unions," NCUA Chairman Deborah Matz said in a statement.
In the lawsuits, filed in federal court in Kansas, the agency is seeking $278 million from JPMorgan Securities LLC and $565 million from RBS Securities Inc.
JPMorgan spokeswoman Jennifer Zuccarelli in New York declined to comment. Spokesmen for RBS didn't immediately return a telephone call seeking comment.
The lawsuits were the latest legal action targeting Wall Street's role in the 2008 financial crisis. The Securities and Exchange Commission, which reached a $550 million civil fraud settlement with Goldman Sachs & Co. last summer, has been investigating a number of major banks.
Buyers of the mortgage securities, mostly banks, pension funds and other big investors, made money from the investments if the underlying debt was paid off. But as U.S. homeowners started falling behind on their mortgages and defaulted in droves in 2007, the securities failed and their buyers lost billions.
A focus of the SEC's investigation has been the securities backed by high-risk mortgages, which banks packaged and sold to investors at the height of the housing boom.