The Royal Bank of Scotland is reportedly being sued by the National Credit Union Administration (NCUA) over claims that nearly half a billion mortgage bonds sold by the largely British-owned bank were faulty, costing investors billions.
The NCUA is a regulating body for small American banks known as credit unions, and claims that RBS is partly to blame for the collapse of five of the country’s largest.
In the lawsuit, filed earlier this week in a Kansas federal court, the NCUA accuses RBS of making misleading statements and neglecting to mention important information in relation to some $565 million of mortgage bonds sold by the bank to credit union US Central in 2006.
When the economic recession hit in 2008, these AAA rated investments began to collapse as mortgage owners defaulted on their loans, and the NCUA was saddled with the responsibility for dealing with the now-worthless bonds.
The agency plans to pursue similar legal action with up to 15 Wall Street banks over the issue, including JPMorgan Chase. It is likely that these financial institutions will need to rely on their professional indemnity insurance in fighting these cases, which could end up being very costly indeed if the NCUA has its way.