NCUA Prepares Mass Redemption Of Corporate CDs
ALEXANDRIA, Va. – NCUA said yesterday it plans to pay off billions of dollars of CDs issued by twocorporate credit union failures by year-end as the corporates transition to new entities.
The federal agency, which has been operating the four failures–WesCorp FCU and U.S. Central FCU–as so-called Bridge Corporates, will do this be terminating its temporary guarantee on all corporate CDs, formally known as the Temporary Corporate CU Share Guarantee Program.
As a result, hundreds of credit union CD holders will find themselves awash in liquidity just as rates continue at decade lows. “Credit unions that are earning money will have to reinvest it somewhere else,” said Tun Wai, chief economist for NAFCU, who noted the negative impact the move will have on earnings for those credit unions. “That’s a lot of money that’s going to be going back.”
It’s not clear which CDs NCUA will redeem early or how much it will amount to, but agency officials said yesterday they plan to use the $36 billion raised from the corporate bailout program–$28.3 billion from the sale of NCUA Guaranteed Notes and $4 billion in subsidized loans from the U.S. Treasury–to fund the mass redemptions. Larry Fazio, deputy executive director, said NCUA plans to make the payouts sometime around December.
NCUA notified members of WesCorp and U.S. Central of its plans for the redemption earlier this week. NCUA told the members the re-chartering of the institutions, which will be preceded by a liquidation, will trigger the redemptions. Each of the two corporates plans to re-charter in some fashion: WesCorp as United Resources FCU; the payments functions of U.S. Central are being re-chartered as PayNet and will be operated by 14 corporates.
“The liquidation will trigger NCUA’s obligation to pay out principal and accrued interest on all shares that do not transition to (the new corporate),” Scott Hunt, director of NCUA’s Office of Corporate CUs, told members of the four “Bridges” in a letter dated Monday. “NCUA is not obligated to pay out any dividends that would otherwise accrue beyond the liquidation date.”