Many CUs Not Expected To Live

Register now

A disaster recovery team led by NCUA, data processors and other private vendors and civil relief workers had succeeded in restoring some operations to all of the 139 credit unions in Louisiana, Mississippi and Alabama damaged or destroyed by Hurricane Katrina by last week.

Many of the damaged credit unions were working out of disaster recovery sites or other credit unions as their home offices were flooded or cut off from phone or electric power, but all of them were reporting some level of operations, according to Len Skiles, executive director of NCUA, who helped spearhead the disaster response for NCUA.

"A lot of the credit union offices were destroyed. Some of them were looted. Some of them are under water. But at this stage, every credit union member has access to their funds," said Skiles.

NCUA Chairman JoAnn Johnson said NCUA examiners went into some of the affected credit unions in New Orleans and other hard-hit areas from the storm with civil relief workers from the National Guard. In several instances they had to break into facilities to get hold of back-up records, and in at least one case the credit union had been looted. "As far as credit unions are concerned, there's no doubt the tough road lies ahead," said Johnson. She talked about major withdrawals and loans combined with lack of deposits, to put significant pressure on many credit unions.

NCUA Board Member Deborah Matz predicted that financial and physical losses suffered by credit unions after Hurricane Katrina will cause some of the hardest-hit credit unions to either fail or be merged out of existence.

The large amounts of funds being withdrawn from credit unions for repairs and other emergency purposes and large amounts of deposits being eliminated because of job losses many affected credit unions are feeling a tremendous financial strain, said Matz last week.

Shake-Out In Gulf Coast

"Clearly, some credit unions are not going to survive," Matz told attendees to NAFCU's annual Congressional Caucus last week. The result, said Matz, will be a "shake-out" of Gulf-area credit unions, in which the weaker and hardest-hit are unable to survive. The strain on credit unions, Matz predicted, will be felt on the National CU Share Insurance Fund, which is expected to experience losses related to the massive natural disaster in the Gulf States.

The next stage of the recovery effort will focus on getting the damaged credit unions back to full operations, according to Skiles. That will include trying to recover the millions of paper documents, like loan files, that have been destroyed by water or other damages from the massive storm. NCUA said all but one of the affected credit unions had a required back-up tape detailing members' transactions, but the majority of credit union documents are still paper-based, so are expected to be hard to replace. The next stage of the disaster recovery will entail great strains on credit union funds, said Skiles. "There's going to be a severe outflow of funds, with a declining inflow of funds, as people withdraw cash and take out loans to finance repairs."

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER