Analyst: NCUA Under-Estimating Cost of Stabilization

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ALEXANDRIA, Va.-In keeping to its nine-month-old projections of the cost of the corporate credit union stabilization program at $7 billion to $9 billion, at least one person is wondering if the agency is vastly underestimating the costs for political reasons.

"I would say that's rather optimistic," said Charles Felker, a former NCUA corporate examiner and now vice president of credit union bond house First Empire Securities, who puts the final tab for the corporate bailout nearer $25 billion.

"They're presenting it in the best light possible," said Felker, who actually chartered the forerunner to Members United Corporate FCU (Empire Corporate FCU) and went on to become the leading expert on credit union investments while at NCUA. Felker was the first person to publicly predict the failure of the five corporates.

NCUA's low figure comes as the agency is trying to convince credit unions to voluntarily prepay corporate assessments in the hopes of reducing the long-term costs of the program, and while Congress is assessing NCUA's culpability in the corporate meltdown via a study by the Government Accountability Office. Many credit unions are supportive of the proposal but are distrustful of NCUA and this week repeated calls for the agency to open up its books on the corporate stabilization program.

NCUA has declined to share comprehensive information on the program with the public or the credit union lobby. But several numbers give a guidepost to the costs eventually to be paid by credit unions.

First, NCUA says even before it took over the five corporates-U.S. Central FCU, WesCorp FCU, Members United, Southwest Corporate and Constitution Corporate FCU-all $5.6 billion of their capital owned by credit unions was erased. As much as $1 billion of capital also was erased from the surviving corporates that had been invested in toxic MBS, bringing that figure to $6.6 billion.

In addition, credit unions already have made a $1.1-billion down payment on the stabilization program over the last two years, pushing the total to $7.7 billion.

The issue then begins to get more complicated. NCUA took MBS that the five corporates had valued at $50 billion and sold $10 billion last fall at a steep discount, creating other losses of as much as $2 billion. The agency securitized the remaining $40 billion and sold it in 13 offerings of NCUA Guaranteed Notes for $28.3 billion-suggesting a loss of $21.7 billion on the securitized MBS.

Meanwhile, NCUA claimed in the suits it filed against JP Morgan and RBS Securities this week that MBS the two Wall Street banks sold to four of the corporates had 50% of their mortgages go bad, suggesting a loss of 50% on the $50 billion of MBS held by the five corporates.

"My sense is that the final tab is going to be somewhere between $20 to $25 billion," said Felker, who noted the uncertainty in the figures. "What I do know for sure is that NCUA has consistently underestimated the losses. Consistently."

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