LAKE JACKSON, Texas — Already staring down the barrel of an $8-million assessment to replenish the share insurance fund, like other credit unions Texas Dow Employees Credit Union is now bracing for additional investment losses in the wake of the US Central and WesCorp conservatorships.
According to CEO Ed Speed, the credit union lost $1.6 million in paid-in-capital at US Central and he recently told TDECU's board to consider the $1 million the institution has invested in Southwest Corp to be "gone," as well.
"We're assuming the NCUA is going to wipe the rest of them out," he said. "How can we do otherwise? We certainly hope not, but we're going to plan on it."
Even if the $1.4-billion credit union is forced to take the full $10.6-million write-down due to the corporate troubles, Speed is confident that TDECU will remain in the black this year. However, the double whammy of a corporate investment wipeout and assessment could cause major havoc in California where a number of CUs are still unstable because of the housing bust and macroeconomic situation.
"There are credit unions on the West Coast that had a huge PIC in WesCorp that are just going to be devastated by this," Speed noted. "This is going to cause a lot of credit unions to go into the red this year."
NCUA plans to re-evaluate the lines of credit that the two failed corporates have established, but pledged in a recent conference call that business would continue on as usual. Speed is a bit skeptical and is planning for additional bumps in the road.
"We're a net borrower of funds, so we'll find out very quickly if they are true to their word," he said.
Though the seizure made major headlines and was even featured as the most prominent headline on the popular Drudge Report website at the time of the conservatorships, Speed said TDECU fielded very few phone calls from members with concerns about the corporate failures. He does believe, however, that the credit union halo is now "a little tarnished" both with the investment community and with federal legislators.
Despite questions he has about how quickly NCUA installed new CEOs and why PIMCO, run by famed financial manager and bond investor Bill Gross, was chosen to examine U.S. Central and WesCorp's books, Speed saw little alternative for the federal regulator but to seize the two failed corporates.
"I do concur with the NCUA that in the case of these large corporates, that provide a lot of services to small CUs, they couldn't just let them go out of businesses," he said. "If they would have gone out of businesses on Friday night a lot of credit unions would not have been able to clear their checks, their auto debits and ACHs would not have worked."
