Price Tag Could Hit $16 Billion
ALEXANDRIA, Va.-NCUA, which a year ago had pegged the cost of the corporate CU bailout at around $7 billion, said the projected cost to credit unions has escalated to as much as $16.1 billion.
The latest price tag, which will be paid by natural-person CUs over as long as 12 years, includes $5.5-billion of corporate CU capital eliminated by losses in the corporate system and $1.3 billion already paid by credit unions last year and this year as a so-called stabilization assessment. That leaves credit unions looking at a bill of some $9 billion moving forward.
The much larger corporate bailout expenses come as credit unions are expected to make annual payments to replenish the reserves in the NCUSIF, which are being depleted by growing losses among natural-person CUs. NCUA has charged credit unions more than $2 billion last year and this year to replenish NCUSIF reserves and has projected additional charges for the next few years.
NCUA Chairman Debbie Matz said the agency has obtained approval from Secretary of the Treasury, Timothy Geithner, to stretch out the planned seven-year bailout to as long as 12 years, ending in June 2021, in order to allow credit unions to make lesser annual payments. According to Matz, these five corporates hold about 65% of all corporate assets, but 98% of the toxic legacy assets.
Those corporates have an enormous amount of losses on the investments they hold on their books, according to NCUA. WesCorp has an estimated $6.9 billion of losses; U.S. Central $3.6 billion of losses; Members United $600 million; Southwest Corporate $496 million, and Constitution Corporate $122 million.
Several other corporates have reported investment losses but they appear to be manageable, according to NCUA.