More Losses Recorded, Higher Assessment Likely

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ALEXANDRIA, Va.-NCUA had more bad news for credit unions last week, announcing it has added eight more credit unions to its troubled list and set aside an additional $170-million to cover losses at natural-person credit unions.

The additional reserves cut the reserve ratio for the National CU Share Insurance Fund and, with two other negative indicators, point to a higher premium assessment later this year, agency officials said during the NCUA Board's monthly meeting.

The other negative indicators are significantly lower interest earnings on the NCUSIF's $9.4 billion in Treasury securities, and high share growth of 11% for the first quarter of the year, which would cause to greater dilution of reserves later in the year. NCUA had originally budgeted $750 million for losses in natural-person credit unions, but the additional reserves increased that pot to $896-million.

Melinda Love, chief examiner for NCUA, warned of increasing losses as the condition of some of the deteriorating, large credit unions becomes clearer.

"There is an increasing potential that $750 million will not be sufficient to cover the potential losses (of those troubled, large credit unions)," said Love. "We'll know more about losses at the big credit unions later in the summer."

The losses by natural-person credit unions are one of the two components that will figure into a special assessment credit unions will be charged this year, with a separate payment assessed to fund the ongoing corporate credit union bailout. NCUA officials said last week they continue to hold to an earlier projection of $6.5 billion of losses from U.S. Central FCU and WesCorp FCU, but also said that defaults on bonds for the two failed corporates are now projected at $7.6 billion over the next two years.

In addition, NCUA is expected to accumulate toxic assets from other troubled corporates and combine them with those at U.S. Central and WesCorp for a huge securitization later this year. Additional losses for those securities have not been projected yet.

The NCUA officials said they still expect the combined assessments to cost credit unions between $1.1 billion, about 15 basis points, and as much as $4-billion, or about 40 BPs. A specific number will not be available until later in the summer, they said.

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