Securities News: UBS To Pay $33M to NCUA For Mortgage-Backed Securities, CFTC, FCA May File More Civil Charges Against Banks for Libor Rigging, Moody’s Waits for end of DOJ’s Subprime Mortgage Probe

UBS to Pay $33M to NCUA Related to MBS Sold to Credit Unions
UBS AG (UBS) will pay $33 million to resolve a lawsuit filed by the National Credit Union Administration accusing the bank of selling toxic mortgage-backed securities to credit unions. The case revolves around MBS that were underwritten and sold by UBS. The securities were purchased by Members United Corporate Federal Credit Union and Southwest Corporate Federal Credit Union for almost $432.4M from ’06 to ’07.

NCUA alleged that offering documents for the securities sold included untrue statements claiming that the loans were originated in a manner that abided by underwriting guidelines when, in fact, the loans’ originators had “systematically abandoned” said guidelines. The false statements made the securities riskier than what was represented to the credit unions. Eventually, the MBS failed, resulting in substantial losses.

To date, NUCA has recovered almost $2.46B from banks over MBS sales that occurred prior to the 2008 financial crisis.

US, UK Regulators May Pursue More Banks Over Libor
According to the The Wall Street Journal, the US Commodity Futures Trading Commission and the UK Financial Conduct Authority are working on pressing the last civil charges against a number of banks for alleged rigging of the London interbank offered rate. LIBOR is the benchmark that underpins interest rates on trillions of dollars of financial contracts around the globe.

Sources tell WSJ that the firms under scrutiny include Citigroup (C), J.P. Morgan Chase & Co (JPM)., and HSBC Holdings (HSBC)—although the FCA has already dismissed its probe into J.P. Morgan.

Already, approximately a dozen financial firms have resolved LIBOR charges, with some of them submitting guilty criminal pleas. Authorities in the U.K. and the U.S. have imposed sanctions of over $6B because traders at the banks colluded with each other to manipulate LIBOR to their benefit.

Additional criminal charges may also be pending.

Moody’s Awaits Outcome of Subprime Mortgage Investigation
According to Bloomberg, the U.S. Justice Department is still deciding whether or not to file a lawsuit against Moody’s Corp. for allegedly inflating mortgage bond ratings. The bonds played a key role in the financial crisis of 2008.

It was just last year that another credit rating agency, Standard & Poor’s, paid $1.5B to settle allegations that it inflated ratings for mortgage bonds to drum up new business when the housing market was booming. The plaintiffs in that case were not just the DOJ but also the District of Columbia and 19 states. However, even though S & P settled, it did not have to admit to committing any wrongdoing.

The DOJ is looking at the credit ratings that Moody’s issued and whether the agency manipulated its criteria to gain business from the banks that were packaging home loans into securities. Already, Moody’s is the defendant of credit ratings lawsuits filed by the attorneys general of Connecticut and Mississippi.

Credit rating companies have come under fire for purportedly giving unwarranted top ratings to bonds that were backed by subprime mortgages. According to the Financial Crisis Inquiry Commission in 2011, the securities downgrades that followed played a big part in wiping out nearly $11 trillion of household wealth.

UBS to Pay $33 Million Over Mortgage-Backed Securities, Reuters/Fox Business, February 25, 2016

Last Wave on Libor: CFTC Likely to Charge Multiple Banks for Rate Rigging, The Wall Street Journal, February 12, 2016

Moody’s Fate in Subprime Probe to Be Decided Soon by U.S., Bloomberg, February 25, 2016