Defections From Corporate System Grow As Questions Mount On Recapitalization

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CHICAGO – Credit union executives are strongly questioning whether they will reinvest in the corporate credit union system and many are exploring alternatives for investments, check processing and other services, as NCUA mulls over the fate of the corporates.

“The board and I are not thrilled about reinvesting,” Janet Cowell, president of Parson FCU, told Credit Union Journal during NAFCU’s 43rd Annual Conference. “We are looking at alternatives.”

The president of the $240 million Pasadena, Calif., credit union said it is already outsourcing its check processing to the Fed and that is working fine. “We are also looking at going to the Fed for full check clearing,” she added. “I know we will have to piece together a solution to not using the corporates, if that is what we eventually decide to do. For example, I do not think the Fed offers a full line of credit.”

The opinions here reflect a growing consensus among credit union executives who have already lost more than $3 billion of capital in their corporates and paid NCUA $1.4 billion to pay the first two of a projected seven or more annual charges to fund the corporate bailout. A growing number of corporates, already wounded by the loss of the capital in U.S. Central FCU and expanding investment losses, are also reporting increasing notices of capital withdrawals by members.

Debra Schwartz, president of San Diego’s Mission FCU, one of the more than 1,000 credit unions that lost money from the failure of WesCorp FCU, questioned whether her $2.1 billion credit union will participate in a recap of the corporate system. She said she is not “anxious to go in front of her board and say, ‘How about a few million more?’ I am going to have to have a compelling business case to make that happen,” Schwartz said. “We use the payment systems and investments of the corporates [WesCorp], but taking a few million in losses makes it hard. We are certainly keeping our options open.”

Finance Center FCU in Indianapolis, which lost $1.5 million of its Members United Corporate FCU capital, is taking a hard look at reinvesting with the corporates, admitted Kevin Ryan, president of the $400 million credit union. “It’s a sizeable decision to get back in business partnership with an organization in which you had a bad investment.”

Nonetheless, Ryan believes recapitalizing the corporates is something that has to be done “The strength of the credit union system is staying together.” Ryan said his credit union is considering partnering with Corporate One FCU, instead. “They have proven to be very strong throughout all the problems,” Ryan added.

 

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