WASHINGTON-CUNA executives thought better last week of going to war with NCUA over the prior week's takeovers of U.S. Central FCU and WesCorp FCU, and instead will work with the federal agency to try to mitigate the $5.9-billion cost of the corporate bailout.
CUNA had a significant role in the governance of U.S. Central, with two representatives on the seven-member board of the $34-billion corporate. One of the directors was CUNA's chief operating officer, while the other was a representative of the CUNA-affiliated American Association of CU Leagues. Another CUNA affiliate, the Association of Corporate CUs, is also the chief lobbying arm of the corporates. (Fiduciary duties require, however, that board members not disclose certain information.)
"You never want to sue the regulator," conceded Eric Richard, CUNA general counsel, of the earlier suggestion by CUNA President Dan Mica that the group might sue NCUA, work for congressional hearings or appeal to the Obama administration if NCUA does not produce documents used to justify the two conservatorships.
Richard said CUNA plans to work with NCUA on several proposals before Congress, including the one introduced by the NCUA Board to create a separate insurance fund for corporate credit unions that would allow credit unions to spread out the cost of the corporate bailout to seven years or longer.
Under the Federal CU Act any party seeking to challenge the U.S. Central and WesCorp conservatorships had until 10 days after the two were taken over - (that would have been March 20) - to file suit. CUNA said it has no plans to file a legal challenge.
CUNA said last week the group has not had any discussions with any member(s) of Congress related to the matter.
In a prepared statement, Mica said "CUNA is committed to keeping as many options open as possible in obtaining answers for credit unions from NCUA about how it reached the conclusions it did for conserving U.S. Central and WesCorp- including through Congress, the regulatory process and the courts."
"Along those lines, CUNA's legal research has determined that we have other legal remedies available to us that are likely to be fruitful if we decide to go to court," the statement continued. "However, CUNA has decided not to file a lawsuit...challenging the appointment of conservators, as we do not see sufficient opportunity to file within the 10-day period on the conservatorship issue."
In a letter to each of the three NCUA board members distributed to the media, Mica insisted that the credit union regulator make public the report by PIMCO, a 4,500-page analysis of every bond in the corporate credit union system, which was used as the basis for the takeovers of the two corporate giants.
The takeovers of the two failed corporates are projected to cost all credit unions at least $2.2 billion, which is in addition to the $1-billion infusion into U.S. Central, with another $3.7- billion cost set aside to guarantee all corporate deposits-a total of $5.9 billion for the corporate bailout.
CUNA had flooded NCUA with form letters and e-mails it asked credit unions to send to the regulator, insisting that the agency make public the PIMCO report. The messages were so numerous they succeeded in crashing the e-mail system of one of the three NCUA Board members. CUNA directed its credit union members last Tuesday in an action alert to "Email each of the NCUA Board Members TODAY and urge them to approve a mechanism to spread out the costs and direct their staff to provide much more information to the credit union system from the PIMCO report."
"Every single credit union in the nation that has had an opportunity to weigh in has expressed concern, outrage, anger, and frustration with the current situation," said Mica in his letter.
"I truly believe that we can address this issue quickly and successfully in a discussion with you and our staffs operating in good faith," said Mica to the federal regulators. "I do not think it would be in anyone's best interest to do otherwise."
The NCUA Board has been reluctant to make the PIMCO report public, citing proprietary information. NCUA did say last week the report cost the agency $4.5 million.
NCUA hired PIMCO, one of the experts on bond valuation, after U.S. Central reported a $1.1-billion loss for 2008, necessitating a $1-billion cash infusion from NCUA.
NCUA stepped in last week after the PIMCO report indicated that billions of dollars more of losses are expected to accrue on the books of U.S. Central, as well as San Dimas, Calif.-based WesCorp. WesCorp was preparing year-end financials that would have shown a loss of $740 million, although it reported to members last month that net income for 2008 was $57.8 million.
CUNA knows that any challenge of the NCUA conservatorships faces an uphill battle, having gone through similar circumstances after the 1995 NCUA takeover of Capital Corporate FCU, the Washington-area corporate known as CapCorp. Laws passed after the S&L crisis made it difficult to challenge federal conservatorships after S&L lobby groups had exercised significant influence in stalling the takeover of failed thrifts at the cost of billions of dollars extra in taxpayer bailout funds.
