Corporates Chipping in to Bolster Capital Position of U.S. Central

U.S. Central Credit Union, much maligned for its capital position, has taken steps to improve it.

U.S. Central in November asked its member corporate credit unions to designate a portion of their deposits as conditional capital.

So far 28 of the 39 corporates have contributed $482 million, or 77% of amount requested, to the effort. The remaining corporates are expected to comply by Jan. 25, said Kevin Keller, vice president of corporate relations for the $20.2 billion-asset institution.

"No corporate has indicated that they are not going to do it," he said. U.S. Central did not announce the plan in November, but several corporate credit unions recently released copies of U.S. Central's request letter.

The funds conversion helped bump U.S. Central's ratio of total regulatory capital up to 4.4% of net assets, Mr. Keller said. As of Dec. 31, 1994, the institution's ratio was 1.1%, according to Callahan & Associates, a Washington-based consulting firm.

The capital-raising effort comes after years of criticism by Congress and other observers, and in anticipation of larger reserve requirements from the National Credit Union Administration. In fact, last year U.S. Central was slapped with the agency's second-lowest performance rating partly because of capital problems.

"We want to maintain confidence in the financial strength of U.S. Central," Mr. Keller said. "There has been some concern about that and this is a step to alleviate that concern."

Acting through 39 corporates, which invest the surplus funds of regular credit unions, U.S. Central is the industry's primary liquidity facility.

Richard Helber, chief executive of Detroit-based Central Corporate Credit Union, said he supports U.S. Central's move.

"It establishes the integrity of the capital program more without really changing our posture," said the chief of the $1.5 billion-asset corporate.

In November corporates were asked to convert 70% of their membership shares, or deposits, into membership capital share accounts that U.S. Central can count toward regulatory capital.

The new accounts are uninsured and subordinated to other deposits, Mr. Keller said. The accounts have no stated maturity but have a three-year withdrawal notice. Withdrawal is subject to board approval.

The membership shares were six certificates with six-year maturities, one maturing every year. They represented the corporates' stake in U.S. Central, but were not considered capital under NCUA regulations.

The remaining 30% of the membership shares was given to the corporates, who can withdraw it if they wish, Mr. Keller said.

To be a member of U.S. Central, corporates must put money into either the membership shares or the new accounts, Mr. Keller said. Although they are "at-risk" accounts, the yields are higher and a smaller cash outlay is required to join up.

The amount a corporate must contribute is derived using a formula based on the asset size of the corporate's member credit unions, Mr. Keller said. The amount necessary for the new accounts is 70% of the old accounts.

Meanwhile, U.S. Central increased its primary capital about 20%, to $240 million, from December 1994 to December 1995, Mr. Keller said.

Mr. Keller attributed the growth in primary capital, which consists of reserves and undivided earnings, to cost-cutting and increased interest and fee income.

Capital building remains a priority, he said.

"We don't feel our job is done," he said.

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