US regulator sues JPMorgan, RBS in subprime probe
A US regulator on Monday sued Wall Street bank JPMorgan Chase and Britain's Royal Bank of Scotland, seeking to recover more than $800 million in losses incurred during the subprime mortgage crisis.
The National Credit Union Administration said it was pursuing the two big banks for actions that led to the collapse of five big credit unions.
In its lawsuit, the NCUA charged the securities firms of the two banks had violated federal and state laws and made misrepresentations in the sale of hundreds of securities to the credit unions, a type of financial institution owned and run by its members.
"NCUA has a responsibility to do everything in our power to seek maximum recoveries from those involved in the issuing, underwriting and sale of the faulty securities that resulted in the failures of five of the largest wholesale credit unions," NCUA board chairman Debbie Matz said in a statement.
The regulator vowed to sue other banks that had sold credit unions mortgage-backed securities which plummeted in value during the financial crisis, without specifying which banks would be targeted.
"We expect to file additional actions and seek a total amount of damages in the billions of dollars," Metz said.
"Those who caused the problems in the wholesale credit unions should pay for the losses now being paid by retail credit unions."
Wall Street banks have generally managed to avoid criminal repercussions from the sale of mortgage-backed securities before 2008, although they have been targeted in civil suits.
When it became clear that many of these securities were backed by delinquent subprime borrowers defaulting on their mortgages -- even though they had been branded low-risk by investment banks and ratings agencies -- the global financial system went into a tailspin.
The leading US financial markets regulator, the Securities and Exchange Commission, has sued only one individual, Goldman Sachs employee Fabrice Tourre, for his role in selling mortgage-backed securities.
Shares of JPMorgan Chase dropped 0.9 percent on Monday, although they were also driven down by fears of contagion from the European debt crisis.
JPMorgan Chase did not respond to a request for comment on the lawsuit.
The five credit unions that failed after the crisis -- US Central, Western Corporate, Southwest Corporate, Members United Corporate, and Constitution Corporate -- were wholesale credit unions that provided services to smaller retail credit unions.
© 2011 AFP