ALEXANDRIA, Va. — Even as credit unions were cheering the new seven-year installment plan for the corporate credit union bailout new charges were emerging last week that will hit their bottom line by year-end.
NCUA was telling credit unions it expects to assess an additional $1- billion premium by the end of the year to replenish reserves for the National CU Share Insurance Fund, even after the agency transfers the $5.9 million cost of the corporate bailout to a new Corporate CU Stabilization Fund.
And several corporates were telling their members they expect to take hundreds of millions of charges in total against their members' capital, which will have to be charged-off by the member credit unions, probably by year-end as well. That is as 1,022 members of WesCorp FCU are in the process of charging-off $2 billion of capital they held in the failed corporate.
Charge on Top of Charge
That's on top of the first year charges of the now-seven-year corporate bailout, which will cost credit unions $1 billion in 2009. Total cost to credit unions is expected to be at least $3 billion this year.
Anthony Lacreta, acting regional director for NCUA's Northeast Region I, said the NCUSIF is in the process of accruing additional costs for losses to resolve large natural person credit unions. "We don't know what the cost is going to be," Lacreta said during a session at America's CU Conference in Boston. "We're still going to take a hit on the natural person credit unions. That's going to impact the premium that will be charged... There will be other charges," he insisted.
According to NCUA, the number of troubled credit unions, those rated CAMEL 4 or 5, has grown 24% over the last year to 301, according to NCUA. Though more than half of the troubled institutions are under $10 million, at least 10 of them are billion-dollar CUs.
Among the other charges, according to Mary Ann Woodson, chief financial officer for NCUA, will be the replenishment of the NCUSIF reserves that have been diluted by the increase in coverage from $100,000 to $250,000, adding another $50 billion of insured shares (deposits) to the fund, and the faster-than-expected growth in shares due to a flight to safety by consumers.
Early estimates are that credit unions will have to pay a premium of about 15 basis points (0.15% of assets), or $1 billion by the end of the year, according to Woodson. In addition, several corporate are reporting they expect their losses on U.S. Central FCU capital combined with losses on mortgage securities will force them to pass those charges on to their members.
At least three corporates; Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU, expect to have their members take write-downs of their capital, and as many as half a dozen other corporates are nearing a similar decision, the corporates reported last month.
That comes as hundreds of credit unions have already written down or are preparing to write down for the second quarter their capital in WesCorp FCU, which will erase $2 billion in capital at 1,022 credit unions before the end of the year.
The final cost of corporate write-offs won't be known until U.S. Central reports its financials for 2008, expected some time next month. But most experts expect the majority of U.S. Central's $1.4 billion in membership capital shares to be exhausted, which will trickle down first to U.S. Central's 27 corporate members, then to the thousands of credit union members of those corporates.
Corporate: Expect Losses
Members United, for example, told its members it expects to charge between 10% and 42% of its membership capital shares against losses. That means the 2,030 member credit unions will have to charge off as much as $202.3 million of their capital in the regional corporate.
Southwest Corporate FCU told its members it restated its 2008 financial to show a $616.5-million loss, which created a $299.4-million deficit in retained earnings, against just $394 million in membership capital shares. Counting a $1.3 billion accumulated other comprehensive losses, the Dallas corporate has a total members deficit of $891.5 million.
Constitution Corporate FCU reported it will have take a charge of as much as 50% of its $67 million of member capital share deposits after figuring in the losses on its U.S. Central capital and mortgage securities.
