NCUA OK's $1B In New Corporate-Related Charges
ALEXANDRIA, Va.-The NCUA Board approved a $1-billion charge to pay for the corporate credit union bailout, while also disclosing that losses accrued by the National CU Shares Insurance Fund have reached almost $1.1 billion for 2010, presaging another big assessment later this year.
The corporate assessment comes after last year's charge of $1.1-billion, which included $337-million for the first year of the corporate bailout and the remainder to replenish reserves for the NCUSIF. This year's corporate assessment amounts to 13.4 basis points and must be accrued by credit unions for the second quarter, and paid by Aug. 30.
NCUA Chairman Deborah Matz said the decision to assess the corporate charge was a difficult one. "We wrestled with this, both in terms of the amount and the timing," said Matz, noting the Board is expected to assess an additional premium to replenish NCUSIF later this year.
The corporate assessment is expected to drive as many as 1,068 credit unions into the red for the second quarter and as many as 552 into the red for the year, while pushing some 60 credit unions into undercapitalized territory, according to NCUA. Almost half of the nation's 7,800 credit unions, 49.5%, reported losses for fiscal 2009, many of them because of the NCUA assessments.
The corporate charge comes as the financial condition of the corporate system continues to unravel, with as many as four big corporates insolvent already and several more teetering. The Board also agreed to borrow another $810 million from the U.S. Treasury to provide critical liquidity for the corporate system through the summer months.
NCUA's Chief Examiner Melinda Love reported that continuing losses on several large credit unions forced the agency to set aside another $132 million in loss reserves in May, making almost $1.1 million in loss reserves for 2010, an all-time high. The growing losses make it likely NCUA will have to go to Congress with a plan to replenish the fund's reserves, she said.
The setting of the corporate assessment comes as NCUA is preparing a plan to remove as much a s$50 billion of toxic assets from the corporate system and sell them in vast securitizations. "Ultimately, the cost of the stabilization effort will be contingent on the performance of the underlying legacy assets," said Matz.