ALEXANDRIA, Va. -- The NCUA Board ths morning reversed its corporate bailout charges and passed a new bailout plan that will give credit unions seven years to repay the $5.9 billion cost.
The plan enacts provisions of the recently passed Corporate CU Stabilization bill which will create a separate fund to pay for the bailout of U.S. Central FCU and WesCorp FCU, as well as any other corporates that may need assistance, then allow credit unions to pay the costs of the program in seven annual installments.
The program will allow thousands of credit unions to reverse almost $3.2 billion in bailout charges taken at the end of 2008 or the first quarter of 2009, according to Melinda Love, chief examiner for NCUA.
Those charges caused the credit union industry to record a loss of $3 billion for the first quarter, it's largest ever.
For credit unions that took the charge in the first quarter they will be able to reverse it for the second quarter by booking an equivalent amount as non-operating income for the period, said Love.
For those institutions that took the charge at the end of 2008, they may record the reversed charges as non-operating income for the second quarter of this year, she said. "This will give them a bump in earnings for 2009," said Love.
Credit unions that took the charge in 2008 or 2009 will be able to add those charges to their net worth for the second quarter (June) call reports, she said.
The effect of the plan is to move the costs of the corporate bailout from the National CU Share Insurance Fund to the new stabilization fund. The Mary Ann Woodson, chief financial officer for NCUA, estimated the first year cost of the fund will be about 15 basis points (0.15%) of assets, which translates into about $1 billion.
But there are dark clouds ahead for credit unions, as several additional factors will deplete the reserves of the NCUSIF further, meaning credit unions will have to replenish it separately by year-end, said Woodson. The estimate cost to replenish the NCUSIF could be as much as another $750 million to $1 billion.
That's because of three major factors. First is the increase in federal deposit coverage from $100,000 to $250,000 per account which has diluted the reserves for the NCUSIF. The increase in coverage means that the NCUSIF is now insuring an additional $50 billion in credit union deposits.
Second is the growth in shares (deposits) for the industry is running higher than expected as consumers seek the refuge of federally deposit insurance. This will dilute the fund's reserves even further.
And finally the cost to resolve several large natural person credit unions is expected to be significant and will cut into the NCUSIF reserves even more, said Woodson.
