Liquidation Of Failed Corporate CUs Begins

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ALEXANDRIA, Va.-In a move unthinkable just two years ago, NCUA began a fire sale this week of corporate credit union assets, realizing billions of dollars in losses that will trickle down to members of America's credit unions over the next decade.

Last week's initial sale of $3.8 billion of NCUA Guaranteed Notes backed by toxic assets held by U.S. Central FCU followed the sale of $9.5 billion of U.S. Central and WesCorp FCU assets, which allowed the credit union regulator to pay off a $10-billion loan from the U.S. Treasury that was used to stabilize the corporate system since the March 2009 conservatorship of the two corporate giants. "This is a significant first step in NCUA's orderly corporate resolution process," said NCUA Chairman Debbie Matz.

The sale of the U.S. Central and WesCorp assets included securities backed by performing residential and commercial mortgages, credit card receivables, student loans and auto loans.

The liquidation of U.S. Central and WesCorp will be the first step in the sale of as much as $35 billion of troubled mortgage assets held by those two and three other corporate failures, including Members United Corporate FCU, Southwest Corporate FCU and Constitutional FCU. The five corporates held as much as $60 billion in credit union assets, or 68% of all the assets in the corporate network (accounting for the fact that most of U.S. Central's assets were doubled counted), at one time, according to Matz.

The resolution of the failed corporates will cost the credit union movement an estimated $16 billion, according to NCUA.

The proceeds from the sale of the U.S. Central and WesCorp assets allowed NCUA to repay a $10 billion loan from the Treasury to NCUA's Central Liquidity Facility, which in 2009 transferred the $10 billion to the National CU Share Insurance Fund in order to lend $5 billion each to U.S. Central and WesCorp. Those loans stabilized the two corporates while they were in conservatorship. Future loans from the Treasury for corporate stabilization will be assigned to the Corporate Stabilization Fund.

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Corporate credit unions