NCUA’s Costs for Resolving Biggest CU Failure Grow

ALEXANDRIA, Va. – NCUA last week said it paid $107.4 million to Patelco CU to induce the San Francisco credit union giant to acquire the remnants of Cal State 9 CU, the biggest credit union failure ever.
 
Cal State 9, which had more than $460 million in assets at one point last year, wracked up a record $193.9 million loss for the first six months of this year before being acquired by Patelco, according to NCUA. Combined with last year’s $61.6 million in red ink, that makes a $255.5 million loss for the failed credit union – roughly what it will cost NCUA and the National CU Share Insurance Fund to resolve the massive failure.
 
Cal State 9 is one of two large Bay Area credit union failures acquired by Patelco last month, along with Sterlent CU. NCUA did not pay any cash to Patelco in the Sterlent deal.
 
Under a purchase and assumption agreement with Patelco, NCUA transferred $114.9 million in Cal State 9 assets, mostly loans, and $222.4 million in liabilities, mostly deposits, as well as nine Cal State 9 branches, to Patelco.
 
As part of an effort to resurrect the troubled credit union under conservatorship, NCUA assumed more than $250 million in failed home equity loans made by Cal State 9 and sold them off in December for around 17 cents on the dollar.
 
The $107.4 million NCUA paid to Patelco made up for the negative capital Cal State 9 held, which would have diluted Patelco’s own capital.
 
By the time Cal State 9 was closed down, a depositor run had drained more than 40% of its $380 million in deposits, leaving it with $217 million in deposits at June 30.
 
After completion of the P&A, NCUA still holds $28 million in assets from Cal State 9. Those assets are part of a growing inventory of failed credit union assets held by NCUA, which includes $152.7 million in assets acquired by last year’s failure of Huron River Area FCU and $56.5 million from Norlarco CU.
 
In the Huron River Area FCU P&A, NCUA paid Detroit Edison FCU $40 million as an inducement to acquire the remnants of that failed Michigan credit union.