Sept. 6 (Bloomberg) -- UBS AG is being sued by the U.S. regulator of credit unions for improper sales of $1.1 billion in faulty securities that contributed to two firm failures, the National Credit Union Administration said.
The lawsuit accuses the UBS Securities LLC unit of the Zurich-based bank with selling residential mortgage-backed securities that were “all but certain to become delinquent or default” soon after the sale, according to NCUA’s complaint dated today. Two wholesale credit unions -- U.S. Central Federal Credit Union and Western Corporate Federal Credit Union --failed after buying the products, the agency said.
“The strength of our entire financial system relies on trust and accountability,” NCUA Board Chairman Debbie Matz said in a statement. “UBS Securities violated this trust, which contributed to the collapse of two corporate credit unions and the resulting crisis in the credit union industry.”
Karina Byrne, a spokeswoman for UBS in New York, declined to comment on the suit, which didn’t specify damages.
“The RMBS were destined from inception to perform poorly,” according to the lawsuit, filed in U.S. District Court in Kansas.
The legal action follows a series of similar lawsuits filed against JPMorgan Chase & Co., Royal Bank of Scotland Group Plc, the Wachovia Corp. unit of Wells Fargo & Co. and Goldman Sachs Group Inc., which was sued last year in a Los Angeles federal court for the recovery of $491 million in losses.
Deutsche Bank AG, Citigroup Inc. and HSBC Holdings Plc agreed in settlements in November and March to pay a combined $171 million to resolve similar accusations, with $145 million from Deutsche Bank, $20.5 million from Citigroup and $5.3 million from HSBC. The banks didn’t admit or deny wrongdoing.
The two were among five wholesale credit unions, which provide services to smaller retail firms, that were placed under conservatorship following the 2008 financial crisis. The Alexandria, Virginia-based NCUA, which is serving as liquidating agent for the failed lenders, is responsible for recovering losses to minimize the hit to its industry-funded stabilization fund.
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