ALEXANDRIA, Va. – NCUA agreed Friday to allow corporate credit unions to write-down 23% of their membership capital shares in U.S. Central FCU–instead of 63% estimated earlier–effectively giving corporates $500 million than was expected.
The lesser figure, which amounts to a write-down of $287 million instead of $786 million, was agreed to after independent auditors reported that 23% of U.S. Central membership capital shares, as well as all of its retained earnings and paid-in-capital, has bene exhausted so far by losses.
NCUA said it still expected U.S. Central to have losses of $2.3 billion, which would eat up the additional $500 million, but current accounting rules will allow corporates to book the lesser figure now. "As a result, (membership capital shares), depletion is 23%, not 63% as originally reported on April 30," said NCUA Chairman Michael Fryzel, in a letter to CUs on Friday.
Under generally accepted accounting principles, or GAAP, the U.S. Central losses will first eat up retained earnings, then paid-in-capital, then membership capital shares. Once that happens, the impact flows down to the individual corporates that own membership capital shares, who must then evaluate the impact on their own retained earnings.
NCUA also confirmed that in the case of WesCorp FCU all retained earnings, paid-in-capital and membership capital shares have been exhausted.
NCUA also said as a result of the lower charge for U.S. Central capital only one corporate will have negative retained earnings. That corporate is believed to be Members United Corporate FCU.
Because of the trickle-down effect, NCUA examiners will continue to monitor the failures of U.S. Central and WesCorp and their impact down the line on other corporates and on natural person credit unions, Fryzel said.
