LENEXA, Kan. – NCUA was insisting yesterday that U.S. Central FCU remains a "viable" credit union even as some industry experts were calling for the liquidation of the one-time $52 million institution, being run under federal conservatorship since March 20.
"I think what they should be doing is moving them into liquidation," said Charles Felker, vice president of credit union bond house First Empire Securities and a former long-time executive at NCUA.
He noted that the new report issued Friday showing that U.S. Central lost $4.9 billion in 2008–and not the $1.2 billion loss reported earlier–means that all of the corporate credit union’s capital, including retained earnings, paid-in-capital and membership capital shares, will be absorbed. "NCUA is calling them viable–I find it hard to imagine," Felker, who chartered one of the surviving corporates, Members United Corporate FCU, told The Credit Union Journal.
Officials at U.S. Central’s 27 corporate members were struggling yesterday to determine whether Friday’s report means they will have to charge-off the remainder of their membership capital shares in U.S. Central, about $720 million, which could push more than one of them to the brink.
So far, losses at U.S. Central have wiped out $750 million of their paid-in-capital and $795 of their membership capital shares, pushing more than half the corporates below minimum regulatory standards. Those corporates have only been saved by a regulatory forbearance by NCUA freezing their capital levels at last November’s level, before the troubles at U.S. Central were revealed.
New NCUA Chairman Deborah Matz issued a statement yesterday saying the agency has not made any decision yet on whether the remaining U.S. Central capital will be charged-off.
"The capital depletion figures, as reported by US Central through June 30, 2009, have not changed. The depletion of all paid-in capital, and 63.7% of membership capital shares, remains valid," said Matz in a statement.
"With the release of the US Central audit, all corporates should consult with their auditors to determine the potential impairment of their US Central capital assets," she added.
Matz and fellow NCUA Board member Michael Fryzel will be in St. Louis today at the first of three town hall-type meetings for credit unions to discuss the future of the corporate system. Fryzel told The Credit Union Journal no decisions have been made yet as to the future of U.S. Central and won’t be until after conclusion of the meetings.
Meantime, Felker worries that if NCUA continues to operate U.S. Central that losses will continue to spiral at added costs for credit unions as the market for the corporate’s mortgage-backed securities continues to deteriorate. "I think it is a foregone conclusions that if the corporates are to survive it will be as a two-tier system, and not three tiers," he said.
