NCUA to pay $171M to stakeholders of failed corporate credit union

Nearly 900 credit unions will receive an unexpected windfall from the National Credit Union Administration next month in the form a payout tied to recoveries from a failed corporate credit union.

Recoveries from Southwest Corporate Federal Credit Union, which was placed in conservatorship in 2010, have been strong enough to fund a $171.3 million distribution to claimholders, NCUA officials said Thursday during the agency’s June open board meeting. Credit unions that were members of Southwest Corporate should receive payments in July.

The Southwest distribution amounts to 42% of $404 million of paid in capital from natural-person credit unions, according to Keith Morton, director of the National Credit Union Administration’s southern regional office in Austin, Texas. Morton acts also as a key advisor to the board on corporate credit union liquidation issues.

Ultimately, credit unions could receive payouts totaling $2.5 billion tied to four of the five corporate credit unions that failed in 2009 and 2010, Morton said. Recoveries from Western Corporate Federal Credit Union likely will not be sufficient to support any distributions, according to Morton.
Morton did not provide a timeline of future distributions. Officials will revisit the issue next year after completion of the annual audit of the NCUA Guaranteed Note Program (NGN), he said.

Initial projections had not anticipated any return of capital to individual credit unions, so word of a distribution came as a pleasant surprise to board members.

“This is really a shared victory,” Chairman Rodney Hood said. “The credit union movement can be proud of its resilience and commitment…while NCUA leadership and staff can take pride in efficiently managing these assets to maximize recoveries.”

Photo courtesy of NCUA, staff photographer Meg Lake

“It is my hope that the agency will begin making distributions to the former members of the failed corporates as soon as is prudently and legally possible and will continue the distributions until the funds are exhausted,” Board Member J. Mark McWatters added.

The last of the NGN notes expires in June 2021, but there are additional assets tied to the failed corporate credit unions that will need to be liquidated, so the settlement process is expected to continue into 2022 and possibly beyond, Morton said.

The agency approved nearly $900 million in equity distribution payouts in 2018 and 2019 following the merger of the Temporary Corporate Credit Union Stabilization Fund into the National Credit Union Share Insurance Fund.

The board was also briefed Thursday on the condition of minority credit unions, as well as efforts to preserve them. According to the agency, there were 514 minority credit unions at Dec. 31, down from 529 at the end of 2018. While NCUA provided grants totaling $813,000 to 61 minority institutions in 2019 and is currently accepting applications for additional grant dollars, it may need to take a more direct role, McWatters said — possibly even facilitating mergers between minority credit unions.

“MDIs are principally disappearing because they cannot operate at the necessary economies of scale to support the business plan and model that are demanded by consumers of financial services today,” McWatters said. “I would think that the NCUA, wearing the slightly unorthodox hat of matchmaker could offer introductions to an array of struggling MDIs with compatible fields of membership and relative geographic proximity.”

The meeting also included a pair of curveballs.

The board was expected to consider risk-based net worth for credit unions but Hood announced at the outset of the meeting that the board voted at the last minute to strike it from the agenda. He later tweeted that the rule did not have enough votes to pass. Had that happened, it would have marked the second time in two months in which a proposal was struck down as the result of a split decision, a rarity for the panel.

The board also approved a request for information on how the agency can use new and emerging data and technology to continue modernizing examination and supervision functions, including virtual exams.

Along with that, however, Hood announced that the agency would indefinitely postpone a return to normal operations. Just a week ago NCUA announced a July 6 target date to return to on-site operations, but that was called off after the resurgence of coronavirus in several states.

“It’s a highly fluid situation and July 6 is no longer an ideal time to resume normal business,” Hood said.

“The most likely scenario is another wave [of new coronavirus cases] that will continue into the fall,” McWatters said. “That’s the science as we know it today. It’s imperative we not put our staff at risk.”