SACRAMENTO, Calif. — The number of CUs stepping up to accept the state general warrants in the face of the widening fiscal crisis continues to grow this week as increasing numbers of banks are refusing to accept the IOUs.
At least 80 credit unions have reported they will accept the warrants, even as banking giants Wells Fargo, JP Morgan Chase and Bank of America have stopped accepting the IOUs.
The Golden 1 CU even tweaked the banks and their reticence with ads running in newspapers urging customers to "tell your bank no thanks." "If the banks accepted federal bailout money and they're not there for their customers now, put your money elsewhere," was the message of the ads.
Teresa Halleck, CEO of the state's largest credit union, said the Golden 1 had redeemed about $100,000 worth of the IOUs, mostly travel reimbursements for state employees or tax refunds. She said her credit union has also contacted counties and cities in their field of membership and offered to redeem the warrants they have accepted.
SchoolsFirst FCU has accepted 104 warrants worth about $100,000 so far, according to Jose Lara, vice president of marketing. "Right now, we're looking out for the best interests of our members," he told Credit Union Journal.
Ricki McManus, a spokesperson at Altura CU, said her credit union had accepted 41 IOUs totaling $57,000 as of last week and will continue to accept the paper indefinitely — for now — from existing members.
But credit unions around the state also see the program as a potential way to attract new members and deposits, according to Henry Kertman, spokesman for the California CU League. "Many credit unions are making public announcements that they are willing to accept new members and accept IOUs from them. It's also an opportunity for member growth," Kertman said.
Most credit unions plan to hold the IOUs, which pay a tax-free 3.75% annual rate until they mature on Oct. 2. But a secondary market is emerging for the paper.
Meantime, SecondMarket, an online trading platform which connects buyers and sellers of illiquid assets, said yesterday it plans to have an online trading venue operating for the IOUs that began last week. Owners of IOUs won't pay any fees to sell them on SecondMarket; buyers will pay a transaction fee of 1% or less.
The move comes a few days after the Securities and Exchange Commission ruled the IOUs are akin to securities, thus enhancing their trading for a secondary market.
"We understand what our exposure is to this, but we have plenty of liquidity right now," said SchoolsFirst's Lara, who said they will accept the state's paper until the end of the month, and evaluate whether to extend it after that.
