Price Tag For Corporate Bailout Soars To $16 Billion
ALEXANDRIA, Va. – NCUA, which a year ago had pegged the cost of the corporate credit union bailout at approximately $7 billion, last week 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 credit unions over as long as 12 years, includes $5.5-billion of corporate credit union 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 National CU Share Insurance Fund, which are being depleted by growing losses among natural-person credit unions. 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.
The continuing costs are projected to push thousands of credit unions into the red, force dozens to fail and accelerate the pace of mergers that has slowed over the past three years. In addition, while NCUA Chairman Debbie Matz insisted Friday that no member will lose any of their insured credit union deposits, many will be driven away from their credit union by the lower rates credit unions will be forced to pay on their deposits.
Matz said the credit union regulator 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 smaller annual payments. “This will provide the NCUA Board with important flexibility in mitigating the impact of the annual assessments to credit unions for the costs over this period,” said Matz. “It should be noted that the costs will be borne exclusively by the credit union industry, and will not result in any loss to taxpayers.”
The original price tag was based on the failures of U.S. Central FCU and WesCorp FCU, which were taken under NCUA conservatorship in March 2009. But last Friday the price rose significantly with the takeover of three more corporates: Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU. According to Matz, these five corporates hold about 65% of all corporate assets, but 98% of the toxic legacy assets.
The five conserved 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.
The latest bailout estimates come with a silver lining, however, allowing members of the failed corporates to recoup any lost capital recaptured after NCUA liquidates their toxic assets as part of the so-called legacy assets plan, according to Larry Fazio, deputy director of NCUA. But he said it is very unlikely the recoveries will be significant.