ALEXANDRIA, Va. – Criticism was building yesterday of NCUA’s $5 billion corporate credit union rescue plan, which industry experts are predicting will wipe out all credit union profits for this year.
CUNA called on the NCUA Board to reconsider the funding of the corporate rescue, which will be engineered by assessing a premium on all credit unions insured through the National CU Share Insurance Fund. The $5 billion special assessment will fund a $1 billion infusion into U.S. Central FCU, guarantee all uninsured deposits in all of the corporates and replenish reserves in the NCUSIF to a level of 1.3% (dollars reserved per $100 of insured deposits).
James Blake, president of HarborOne CU, in Brockton, Mass., predicted the huge charge will cause even healthy credit unions like his own to reign in lending and other activities as they struggle to cope with a reduction in both net worth and in net income, at a time when credit unions can be helping their troubled members and communities.
"I have to think that those numbers of credit unions already on the ropes now will be absolutely jeopardized. There’s no question that the whole industry is going to contract," said Blake, who estimated the cost to his $1.7 billion credit union at $8 million, more than the $7.1 million of net income reported for 2008.
"I understand the rationale but believe there needs to be more thought and effort as to how best to approach the stabilization," said Tina Sbrega, president of GFA FCU, a $260 million credit union in Gardner, Mass. "The current solution will place the entire industry at risk and the public perception of our industry being among the safest will be shattered. I believe it has great potential to cause a run on credit unions when news breaks that a significant percentage of credit unions are below the required capital ratio and have posted losses for the year."
Christopher Langley, president of Eastern New York FCU, said the premium credit unions will be charged will have a devastating effect on his $52 million credit union, which eked out net income of just $976 for 2008. "ENYFCU, like a number of credit unions, would be placed into prompt corrective action as a result of the special assessment as currently proposed based on our budget projections–and have to cut branch hours, dividends, staff, marketing, etc.," he told The Credit Union Journal yesterday.
"This has caught a lot of folks by surprise and a lot of folks are not too comfortable with it. But absent any taxpayer assistance there aren’t many other alternatives," said Scott Waite, chief financial officer for Patelco CU. Waite estimated the special assessment will cost the $4.1 billion credit union which reported a $40.2 million loss for 2008, will have to take a $25 million hit to its net worth and its net income for 2008. "This completely caught us and everyone else by surprise," said Waite.
CUNA’s chief economist Bill Hampel said yesterday the entire credit union industry probably had no net income for the fourth quarter of 2008, the worst ever for credit unions, and he projected the NCUA charge will erase any net income for all of 2009. "Eighty-to-ninety-percent of credit unions would experience negative ROAs just from the premium," said Hampel.
