Former WesCorp At Just 10% Of Its Recap Goal

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BAKERSFIELD, Calif.-There's still time to capitalize United Resources FCU, but the clock is ticking and a number of sources are concerned the spin-off of the one-time $34-billion WesCorp will not reach its capital call.

Through July 19, United Resources had raised $22.84 million of its $200 million capital goal, according to a United Resources communication obtained by Credit Union Journal. Credit unions have until Aug. 31, according to the corporate's initial subscription period, to decide whether to invest in the new entity.

Matthew Davidson, United Resources chair and CFO for the $1.3-billon Kern Schools FCU, said the capital offering has experienced some "good surprises and some bad surprises. I wish the numbers were better, but I am not alarmed. It is still too early to tell with a lot of decisions being made at July board meetings. I don't have information that tells me we have an insurmountable hurdle, and I don't have information that tells me we will get to our goal. It will be interesting."

What may be slowing natural-person CU decisions and possibly damaging United Resources' capital call, according to several sources, is Western Bridge's financial performance. The CU has experienced seven straight monthly losses since NCUA transitioned the corporate it had placed into conservatorship in 2009 and reformed as a bridge corporate under its corporate resolution plan. NCUA reported that Western Bridge had a $2.1-million loss for May, the same loss as in April.

"After next month they will likely have negative equity," observed Stuart Perlitsh, CEO of the $300-million Glendale Area Schools FCU in Glendale, Calif. "That is not a model for success and we know the corporates are challenged to make money under the new system. I am not quite sure what some CEOs are thinking (capitalizing United Resources). Show these numbers to anyone on the street and they will say you are crazy for investing. It does not even compute-Western Bridge's losses are getting larger, not smaller."

Better News at Alloya
Meanwhile, John Fiore, chair of the advisory council and charter advisory group that are creating the new corporate out of Members United Bridge Corporate, said the new institution, known as Alloya, has seen its capital offering progress well, reaching 60% of its $70-million goal early last week. He concluded that natural-person CUs have to be watching Western Bridge's financial performance closely.

"You have to look at something as an indication as to whether an organization will make it or not, and there are a couple things you can do," said Fiore. "One, how is their capital raise going-are credit unions investing and confident about going forward? Second, are they making money? It is much easer to invest in an organization that is making money rather than losing it."

Fiore, also CEO of the $760-million Motorola Employees CU in Schaumberg, Ill., said Members United Bridge has been profitable this year. "We are making money, not a lot of money, but we are making money every month. I think that gives credit unions confidence that we are moving in the right direction."

Robert Einstein, CEO of the $130-million UMe FCU in Burbank, Calif., has decided not to throw in with United Resources and instead has signed with Corporate America CU in Birmingham, Ala. Einstein said he made the choice because he believes United Resources' business model is not good and joining that corporate is "not a good deal. I think they have 250 employees that will run a balance sheet of somewhere around $5 billion. Corporate America has 65 employees with a balance sheet of about $3 billion, and they are not losing money. United Resources attributes its losses to the fact their ability to invest has been restricted by being a bridge. But how much more income would they make with their investments if they could do whatever they wanted?"

Ninth Inning Rally?
Perlitsh predicted it will take a huge "ninth-inning rally" for United Resources to reach its $200-million capital goal. "I don't see that happening. They will have to bring in a significant amount of money in short period of time."

The lack of support for United Resources is something of a surprise even to the skeptical Perlitsh, who said he has spoken with numerous CEOs who have decided not to participate in the new WesCorp. "

Before seeing the recent United Resources capital and financial performance numbers, Perlitsh had assumed many credit unions would take the "easy way out" and recapitalize rather than trying to make a go of it on their own, which GASFCU has done for the last five years, working directly with the Fed. "It may cost you an extra buck or two to recapitalize, but it's the simpler step."

Almost weekly credit unions tap GASFCU to stop by and look at how the credit union conducts business with the Fed. Perlitsh said that interest from credit unions has been there for at least a year and has picked up significantly in the last six months.

There are some who are confident United Resources will make its capital call, and expect a lot of commitments to be made shortly. Stephen Weakley, CEO of the $380-million Vons CU in El Monte, Calif., his signed on. "Based upon their business model and if they can do the volumes they are proposing, they should be profitable"., he said.

If United Resources fails to make its capital call, it will be subject to the provisions of PCA, according to the NCUA's David Samll". In that case NCUA would step in to "protect the safety and soundness of the system for the members," he said.

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