Once Burned, CUs Wary About Corporate Recap

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WASHINGTON – Credit unions executives, mindful of the losses they realized on the collapse of the corporate credit union system, are slowly calculating whether to recapitalize the corporates.

“I don’t like the idea but we have to find a way of stabilizing them because they provide us with important services,” Jace Reyes, president of Miami Postal Services CU, said yesterday at CUNA’s Government Affairs Conference of a solicitation from Southeast Corporate FCU for new capital. Reyes said he will be meeting with other Miami-area credit unions next week to discuss the new capital call from Southeast.

“We don’t know if we’re ready to recapitalize yet,” said Steve Kenny, president of Columbia CU in Vancouver, Wash., which lost $1 million of its WesCorp capital. “My board is a little concerned about participating again because we lost our investment.”

Most executives are shopping a variety of resources to determine if a corporate recap is their best option. Several have already migrated to the Federal Reserve for their payments processing. Others are looking seriously at commercial banks to fill the void. Others are looking at membership in a corporate that already is adequately capitalized.

“We haven’t decided to go a full share,” said Nicholas Wodogaz, president of Columbia, S.C.’s Palmetto Citizens CU, of requests for new capital from First Carolina Corporate CU. “We’re willing to put up some of it, we just haven’t decided whether we’re going to participate on a full basis.”

The reluctance comes as credit unions are still hurting from the cascading losses in the corporate system – first by the failure of U.S. Central FCU, then WesCorp FCU, Members United, Southwest Corporate FCU and Constitution – contributing to the elimination of $5.5 billion of capital credit unions had invested in the corporate system.

Several corporates have initiated new capital raising campaigns in order to meet NCUA’s new capital standards. Among them are: Southwest, First Carolina, Southeast, EasCorp, Corporate America CU and CenCorp CU. But many others have yet to ask their members for additional investments as they formulate plans – due at NCUA by the end of the month – for their future.

William Anderson, president of Mid-Oregon FCU, said he and his board weighed the $1 million of capital the credit union lost in the failure of Southwest against the millions of dollars in dividends and other benefits it earned from corporate membership, first in Northwest Corporate FCU, then when Northwest merged into Southwest, and have agreed to participate in the recapitalization of Southwest as it combines with Georgia Corporate FCU. “You have to do a business analysis of the long-term benefits,” he told Credit Union Journal outside of the GAC.

For Service FCU, there was little question the New Hampshire credit union would help resurrect the corporate system, even though the $1.7 billion credit union has the resources to go outside the credit union system for its payments and other critical services. “The corporates are integral to the credit union system,” said Dan Clarke, vice president of branch administration at Service, of its buying into the new capital issue at Massachusetts’ EasCorp.

Jeff York, the president of California’s CoastHills FCU, which lost $2.5 million of its capital on the WesCorp failure, said it is still waiting to see what model is presented to members for a resurrection of the one-time $32 billion corporate, but he is expecting to participate in a newly chartered WesCorp. “If it is going to benefit the industry, we absolutely would [participate in a recapitalization].” York said he favors the proposal, temporarily put on hold by NCUA, to combine the remnants of WesCorp with the remnants of Members United.

Most executives are waiting before committing. “We haven’t made a decision yet,” said Terry Field, chief financial officer for Vermont State Employees FCU, which lost capital in WesCorp, Members United and EasCorp and also is a member of TriCorp FCU. “We’re still looking at offers from the different corporates.”

 

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