ALEXANDRIA, Va. – Widespread opposition was building last week among both healthy and troubled credit unions to NCUA’s $5 billion corporate credit union rescue plan announced earlier in the week.
"It’s certainly a shock to the system," said William DeMare, president of Bay Gulf FCU, a Tampa, Fla., credit union that has already seen its capital depleted by a $4.4 million loss in 2008.
The special premium to be assessed by NCUA will cost credit unions 56 basis points and require them to write-down the value of their 1% NCUSIF deposit, delivering a double hit to credit unions by reducing both their net worth ratios and ROAs for 2009.
"I’m in favor of anything that would not cause us to take a reduction in net worth and ROA," said DeMare, of the estimated $800,000 his credit union will have to pay as part of the $5 billion premium NCUA will assess all federally insured credit unions. The cost, he said, will probably push his $160 million credit union’s net worth below the 6% mark, necessitating a capital restoration plan under NCUA’s prompt correct action rules.
Healthy credit unions are also balking at the price tag.
Gregg Smith, president of Pennsylvania State Employees CU, said his $3.3 billion credit union was able to earn an $18.6 million net, a 0.58% return-on-average assets, for 2008, but projects tougher times for 2009, maybe half the ROA. He worried the NCUA premium could erase all of that profit. "It will be a very challenging thing to post a black number with that," Smith told The Credit Union Journal Friday.
CUNA President Dan Mica told credit union executives Friday there is broad opposition to the NCUA plan, based on emails, phone calls and other communications fielded at the end of last week. "Credit unions," said Mica, "do not welcome this plan in any way."
Both CUNA and NAFCU were calling on NCUA to mitigate the impact of the premium, which will finance a $1 billion capital infusion for U.S. Central FCU; the guarantee of more than $80 billion in corporate credit union deposits; and the replenishment of reserves for the National CU Share Insurance Fund, which have been depleted by a growing number of large credit union failures.
Among the alternatives CUNA and NAFCU want NCUA to pursue are: stretching out the premium to multiple years; having the Treasury Department, instead of the NCUSIF, guarantee the corporate deposits through the Troubled Asset Relief Program; funding the corporate rescue through the Central Liquidity Facility; or allowing credit unions to pay the premium from reserves, rather than running it through their income statements.
