CONCORD, Calif. – The National CU Share Insurance Fund continued to wrack up big losses last week by assuming tens of millions of dollars in liabilities in the merger of failed Cal State 9 CU into Patelco CU.
To facilitate the deal, NCUA, which administers the federal deposit insurance for credit unions, agreed to assume Calt State 9's entire home equity loan portfolio of more than $250 million, and sold the loans at a fraction of their book value, NCUA sources told The Credit Union Journal.
Then, NCUA is believed to have provided either a cash inducement or a guarantee of remaining liabilities on the failed credit union’s books, as it does in most assisted mergers.
In return, the $4 billion Patelco CU will receive Cal State 9's headquarters and five branches surrounding San Francisco where Patelco is based, and almost 30,000 member accounts.
This kind of assisted merger is known as a purchase and assumption, or P&A, where an ongoing credit union purchases the healthy assets of a troubled institution and NCUA assumes the failed assets.
NCUA took Cal State 9 over last November in response to growing delinquencies and charge-offs in its troubled HELOC portfolio. Since then, the credit union’s condition has continued to decline with the California mortgage market, causing a whopping $61.6 million loss for fiscal 2007, and a huge $53.1 million loss for the first quarter of 2008, while a depositor run was draining 34% of shares from the troubled credit union from the star of 2007 to the end of the first quarter this year.
By the time of last week’s deal, Cal State 9 had negative equity of $76.7 million, much of which will be made up through the NCUSIF. Among the detritus of the failed one-time $465 million are hundreds of bankruptcy court cases brought against delinquent members.
NCUA officials said last week it is too soon to tell how much of the losses will accrue to the NCUSIF, which is expected to book huge losses already on more than $300 million in distressed Florida real estate loans it assumed from three failures last year: Norlarco CU, Huron River Area FCU and New Horizons Community FCU. Several other credit unions currently on the brink, are expected to add to that toll.
These losses and the continuing travails at some of the troubled credit unions are expected to prevent NCUA from paying a dividend on the NCUSIF again this year.
