Corporate Revival Counts On Capital Call
DALLAS-The success or failure of the planned resuscitation of Southwest Corporate FCU, liquidated by NCUA along with four other failed corporate credit unions last fall, will depend on whether members of the one-time $14 billion institution agree to pony up new capital as part of a plan to combine the remnants of Southwest with Georgia Central FCU.
Credit unions around the country will be watching the proposed merger closely as Southwest members, who lost $725 million of capital as a result of the failure, are being asked to contribute $100 million of new capital to the venture, according to Kerry Parker, president of A+ FCU and chairman of the Southwest Corporate Bridge FCU Advisory Council.
Plans call for the new corporate to be run out of Southwest's Suburban Dallas headquarters in Plano, Texas, and for the existing senior management of Southwest to run the new institution, which would adopt the charter of Georgia Corporate.
The new corporate aims to raise about $130 million in permanent perpetual capital, which would give it a 5% leverage ratio on $2.6 billion in assets under NCUA's new corporate regulations, according to Parker. But since Georgia Corporate currently holds about $30 million, all of the remaining $100 million would have to come from members of Southwest, who were burned in last year's failure.
Parker said management is cognizant of this and is asking for lesser capital contributions. "Members did not want to put up as much capital as they did in the past," she told Credit Union Journal, after announcing that Southwest members voted to move ahead with the merger.
If successful, organizers of the corporate resuscitation said the Georgia merger will serve as a jumping off point for additional mergers, as further corporate consolidation commences. There are at least two other corporate mergers in the works: Pennsylvania's Mid-Atlantic Corporate FCU is absorbing troubled Virginia Corporate CU and Alabama's Corporate America CU is combining with Louisiana Corporate CU.
Since NCUA has liquidated Southwest and is in the process of selling off its investment portfolio, Southwest is made up of about $8 billion in short-term investments for its members (overnight funds and Treasuries), its payments processing services and several CUSOs, including Investment Advisory Services and Business Lending Services. Its headquarters offices are leased.
The combination of Southwest and Georgia would have a member base of as many as 1,500 credit unions, about 1,400 of them members of Southwest and 144 members of Georgia Corporate.
The next step for the merger is to submit a business plan to NCUA for its approval and to commence a road show to raise capital from prospective members.