ALEXANDRIA, Va. – Credit unions around the country struggling with their share of the corporate credit union bailout are girding for other new write-downs for their shares in other troubled corporates.
Most of the 26 corporates–beside the failed WesCorp FCU–are expected to fall below minimum capital rules after they charge off their capital in U.S. Central FCU, forcing natural person credit unions to write down their capital in those corporates, according to industry sources and Wall Street rating agencies. Credit unions could be forced to write down as much as another $2 billion of corporate capital–on top of the $2 billion of WesCorp capital being written down by 1,022 WesCorp members. The trickle-down effect could have dire consequences for dozens of credit unions already teetering on the brink of prompt corrective action.
The write-downs are expected to become clearer once NCUA, which is running U.S. Central and WesCorp under conservatorship, provides audited financial results for 2008 for the two corporate failures, according to Greg Schwartz, auditing partner for McGladrey & Pullen, the national accounting firm.
"It’s kind of a domino effect," said Schwarz, of the impaired capital in U.S. Central, that would be written down b y corporate members, forcing members of those corporates to write down their own shares.
Some credit unions have already starting do so. Rick Heldenbrant, president of Star One CU, in Sunnyvale, Calif., said last week his credit union charged off $15 million of capital it had in WesCorp and $5 million of capital it owned in Members United Corporate FCU and one other corporate in the first quarter.
Oregon Community CU, which owns shares in Southwest Corporate FCU, expects to take a charge for its Southwest holdings in the coming quarters, according to Mandy Jones, president of the $900 million, Eugene, Ore., credit union. "We’re expecting to take a write-down," Jones told The Credit Union Journal Friday. "I just don’t know how much yet."
On Friday NCUA conceded the dire condition of some of the corporates and said it will provide regulatory forbearance and allow the corporates with dwindling capital to continue to operate under their November 30, 2008 capital levels for the purpose of determining regulatory capital compliance.
"As many of the functions that corporate credit unions perform are tied to the level of capital, there was a serious concern that they would be unable to provide normal daily operational services to their member credit unions after recording capital losses," said NCUA Chairman Michael Fryzel, in a statement. "To avoid any disruption of critical services, the NCUA Board has issued an order that will per mit corporate credit unions to use the capital level as reported on their November 30, 2008, NCUA 5310 Call Report, for purposes of determining regulatory compliance with capital-based requirements and regulations in the corporate rule."
Still to be determined is whether the 1,000 credit unions that are members of the 12 Federal Home Loan Banks will have to write down the value of their FHLB stock as several of the Banks are reporting impairments of their capital. McGladrey & Pullen’s Schwartz doubts whether a write down will be required for FHLB stock, which is not marketable and has no value other than providing its owner with a right to receive quarterly dividends and an entry to FHLB services.
