WARRENVILLE, Ill.-Losses for corporate credit unions continue to pile up at an accelerated pace, raising doubts about the corporates' ability to continue as "going concerns" and new questions about whether NCUA will be forced to go back to Congress and seek additional assistance for the corporate bailout.
Growing losses at Members United Corporate FCU have eliminated almost all of the $9.5-billion corporate's member capital and "raise substantial doubt about Member United's ability to continue as a going concern," the corporate's auditors McGladrey & Pullen LLP, stated in the newly released audit for 2009.
Auditors have already raised "going concern" doubts about U.S. Central FCU and WesCorp FCU, which have been under NCUA conservatorship since March 2009.
Similar going concern doubts were expressed in recent days by auditors for Constitution Corporate FCU, Southwest Corporate FCU and several other corporates as losses in the system continue to expand. Southwest Corporate reported that its growing losses and diminishing capital raise substantial doubt about Southwest Corporate's ability to continue as a going concern.
Auditors for First Carolina Corporate CU, which has reported diminishing capital, said "there is uncertainty about whether the credit union will be able to restore capital to a level necessary to meet the requirements of the new regulation."
"These letters by the auditors are saying the situation is likely to get worse," said Charles Felker, vice president at credit union bond house First Empire Securities and a former chief investments officer at NCUA, who urged the agency to seek additional assistance from Congress. "I'm wondering when NCUA will go to Congress and say 'we need a bailout.'"
NCUA said it is keeping Congress apprised of the corporate meltdown. "NCUA is in ongoing communication with Congress about the state of the corporate credit union system," said John McKechnie, chief spokesman for the agency. "The 'going concern' issues with certain corporates are those that NCUA has been aware of, and their reported losses are consistent with projections. As such, NCUA remains confident that the Stabilization Program put in place by Congress is sufficient to deal with the situation."
The growing losses come as NCUA is preparing a plan that would securitize as much as $50 billion of underwater investments held by the corporate network, which would require the agency and the National CU Share Insurance Fund to recognize billions of dollars of losses on the securities.
NCUA's McKechnie said the agency's plans to deal with the corporates' toxic assets have not been finalized.
Congress approved a Corporate CU Stabilization Fund last year that will allow NCUA to borrow as much as $6 billion at subsidized rates to allow the corporates to carry their toxic holdings. But Felker and others are wondering if that will be enough, even as NCUA is preparing to assess credit unions more than $1 billion as this year's installment on the multi-year corporate bailout.
