Subprime Woes Push Privately Insured CU Giant Into the Red

SAN FRANCISCO – In news that could challenge the renascent market for private deposit insurance, Patelco CU, the largest privately insured credit union, reported it lost more than $8 million last year after writing off $41 million from its failed subprime auto lending program. The loss, disclosed recently in the $4 billion credit union’s annual report, comes as numerous credit unions are detailing millions of dollars in losses in their own subprime auto programs. But most of those were related to failed subprime lender Centrix Financial–Patelco’s was not. Patelco, which converted to private insurance in 2002, began its subprime program in 2004. However, losses accrued, forcing it to sell most of the portfolio, $195 million worth, to subprime lender ACC Consumer Finance, which it partially owned. Despite the losses, Patelco CU President Andrew Hunter reassured members as to the credit union giant’s solvency. "We know this is not a financial performance you expect from your credit union," said Hunter, of the $8.3 million loss for 2006. "We hope you are also aware that Patelco is still extremely well capitalized, with total capital exceeding $400 million." The Patelco disclosures come as private insurance, which all but dried up following the 1990 crisis in Rhode Island, is making a comeback, with regulators in Texas and Washington state preparing to once again allow state chartered credit unions to privately insure.