NCUA Outlines Plan For Bridge Corporates
ALEXANDRIA, Va. – During NCUA’s virtual town hall meeting Monday, the agency outlined the “good bank/bad bank” model under which four of the five conserved corporates will be transitioned to “bridge corporates.”
The goal is to give NCUA time to work with the stakeholders to determine the best resolution, be that a completely new corporate charter, merging with an existing corporate or seeking alternative service providers.
Connecticut-based Constitution State Corporate, however, will be going through a more traditional purchase and assumption, the agency said. U.S. Central Corporate, Western Corporate, Southwest Corporate and Members United Corporate will be undergoing the “good bank/bad bank” plan.
Under the “good bank/bad bank” scenario, the good assets of the corporate are transferred to a bridge corporate, which will continue to provide payment services to the old charter’s member credit unions, while the legacy assets – the troubled securities, largely made up of mortgage-backed securities – will go to the Asset Management Estate (AME), operated by the NCUA’s Asset Management Assistance Center in Houston, where they will be securitized and sold off as NCUA Guaranteed Notes (trading under the NGN ticker symbol). NGNs cannot be purchased directly through NCUA; all transactions will go through Barclay’s.
NGNs will have terms that are no more than 10 years and are eligible investments for credit unions. The proceeds of the notes will help to repay the bridge loan.
The primary purpose of the bridges, according to NCUA’s Scott Hunt, is to allow for uninterrupted service to the 4,600 natural-person credit unions that are served by the conserved corporates. The bridges are for payments, not for long-term investments, and will not be allowed to take on new members. Term deposits will be limited to six months.
“We don’t want 4,600 individual institutions going out and looking for payment services individually,” explained Hunt.
The agency has allotted 24 months for the transition period. During that time, NCUA will work with the members of the bridge entities to either:
1) Charter a new corporate to purchase and assume the bridge.
2) Partner with a CUSO or other external party to purchase and assume the bridge.
3) Request a merger with one of the existing corporates.
4) Seek an alternative provider outside or inside the CU system.
The remaining 22 corporates have been determined to be financial viable, NCUA said, and do not need direct agency supervision. They will have to maintain a minimum of 4% regulatory capital and 2% positive NEV and formulate a new business plan, with a year allotted for doing so. “Some of these corporates are ready to hit these numbers today,” Hunt noted.
NCUA is working with Barclay’s on the Good Bank/Bad Bank program, and U.S. Central and WesCorp are expected to transition to bridge entities in the “closer future” than the other three corporates, which were only just recently taken into conservatorship.
NCUA Chairman Debbie Matz emphasized that the final outcome for these bridge entities will be up to the credit unions themselves. “It is up to credit unions to decide whether they wish to continue to get services from corporates or elsewhere,” she said. “We believe small credit unions will still need one or two corporates.”
One of the keys to success, however, will be keeping funds in the system during the transition, Hunt said, with an estimated completion date of February 2011.