SAN DIMAS, Calif. – Credit unions left staggering by their share of the corporate credit union bailout are struggling with the added injury from last month’s WesCorp FCU failure, which wiped out $2 billion of credit union capital.
The double charge for the corporate bailout and the WesCorp failure took a modest first quarter loss at Kinecta FCU and turned it into a gaping loss of $51.3 million, for example. "We actually broke even, only about a $1 million loss, for the first quarter," said Simone Lagomarsino, president of the $4 billion credit union, of the dual charges of $29.8 million for the corporate bailout and the $20.6 million charge for its WesCorp stock.
The dual charges, totaling $44.3 million, took what would have been a healthy $36 million net for Star One CU and turned it into a big $32.4 million loss for the first quarter.
"We just decided to take it all at once, rather than later," Rick Heldenbrant, president of the $4.6 billion credit union, told The Credit Union Journal yesterday.
Both California credit union giants decided to take charges for the full impairment of their 1% National CU Share Insurance Fund Deposits, amounting to 69 basis points, and the expected premium to be assessed later by NCUA, amounting to 30 basis points.
For Star One that amounted to $24.3 million charge for corporate bailout charge. "We took it all in the month of March," said Heldenbrant.
But just as troubling is the fact that Star One took a $15 million charge for its WesCorp stock–and charges of $5 million more for impairment of its capital in Members United Corporate FCU and one other corporate, according to Heldenbrant.
What’s more the WesCorp charge is spread all across the country, as the corporate giant’s 1,022 members came from a nationwide field of membership. So credit unions like Florida’s Suncoast Schools FCU, already struggling under huge losses, has yet to add the $9 million it expects to charge for its WesCorp capital, according to Tom Dorety, president of the $5.8 billion Tampa, Fla., credit union. Suncoast, Florida’s largest credit union, reported a $53.6 million loss for the first quarter, comprised of a $23 million operating loss and $30.6 million charge for the corporate bailout. Dorety said the first quarter charge only includes the impairment of the 1% NCUSIF deposit and not the expected premium, on the advice of the Suncoast auditor.
The accounting treatment for the two charges is taking many different forms. Some credit unions have taken the charge for the corporate bailout retroactively back to their 2008 books, reasoning that’s when the events occurred related to the charges.
A spokesperson at Navy FCU said the credit union giant decided to take both the impairment and premium charges for the first quarter–a staggering $217.1 million charge–on the advice of their accountants, Pricewaterhousecoopers. "They told us when you know you’re going to have to book an expense you must do so right away," said Jennifer Sadler, Navy Fed spokesperson.
The huge charge wiped out a $50.2 million first quarter net for the $38.8 billion credit union. "We’ve been doing terrifically without the charge," said Sadler, noting $3 billion of first mortgages, $2.5 billion of new deposits and 86,000 members added to the books of the credit union in the first quarter. "Business is very, very good for us," she added.
Still, many credit unions have yet to take any charge for the corporate bailout or for their WesCorp capital and plan to do so later.
