Corporate CDs Come Due
ALEXANDRIA, Va. – NCUA is telling hundreds of credit unions the re-chartering of WesCorp FCU and U.S. Central FCU will trigger termination of billions of dollars of their CDs with the two bridge corporates, a year before NCUA’s temporary share guarantee is set to expire.
The NCUA temporary guarantee of corporate deposits, formerly known as the Temporary Corporate CU Share Guarantee Program, provides credit unions with deposits in troubled corporates a federal guarantee of their funds exceeding the $250,000 limit for federal deposit insurance. The federal guarantee is scheduled to expire on Dec. 31, 2012.
In separate letters this week to 1,000 members of WesCorp, which is being re-chartered as United Resources FCU, and to the 23 corporate members of U.S. Central, whose payment business is being re-chartered as PayNet, NCUA said it will not transfer CDs from the two corporate failures at a premium–meaning with the federal guarantee-- “as that will increase costs to the insurance fund.”
Both corporates are expecting to complete their re-chartering before year-end, which will trigger the due date of the CDs.
As part of the re-chartering process, each of the corporate “bridges” will be liquidated, and then be acquired by the new charter in a so-called purchase and assumption. “The liquidation will trigger NCUA’s obligation to pay out principal and accrued interest on all shares that do not transition to United Resources,” Scott Hunt, director of NCUA’s Office of Corporate CUs, told 1,000 WesCorp members in a letter dated Monday. “NCUA is not obligated to pay out any dividends that would otherwise accrue beyond the liquidation date.”
NCUA sent a similar letter to members of U.S. Central. In the case of PayNet, with which 14 corporates are bidding to buy the payment services of U.S. Central, NCUA said if the group does not raise sufficient capital to charter a viable entity NCUA will need to wind down the operations.
NCUA said its policy under the temporary share guarantee is that dividends on the CDs that “have been accrued and posted in a period before the date of liquidation are treated as principal and would be fully covered.” Dividends that have been accrued but have not yet been posted at the date of liquidation will not be guaranteed.
In the case of WesCorp the liquidation and transition to United Resources will trigger NCUA’s obligation to pay out principal and accrued interest on all shares–even those maturing in the future--that do not transition to United Resources. "NCUA is not obligated to pay out any dividends that would otherwise accrue beyond the liquidation date," said Hunt in his letter.