ALEXANDRIA, Va. – Friday night’s historic government takeovers of U.S. Central FCU and WesCorp FCU will cost credit unions at least another $1.2 billion, on top of the $5 billion being assessed to fund the corporate bailout, NCUA officials said.
NCUA has already pumped $1 billion into U.S. Central to keep it afloat and has set aside almost $4 billion to guarantee all deposits at corporate credit unions.
"Last night’s action added approximately $1.2 billion to the total cost," John McKechnie, chief spokesman for NCUA, told The Credit Union Journal Saturday.
Though he could not say the additional $1.2 billion will be enough to shore up the troubled corporate giants, agency officials are hopeful it will suffice. "The troubled assets in these two institutions have been segregated," said McKechnie.
The additional funds, like the $5 billion already expended, will have to come from credit unions who will be called on to replenish monies spent by the National CU Share Insurance Fund, he said.
U.S. Central, based in the Kansas City suburb of Lenexa, Kan., is the corporate credit union for other corporate credit unions and manages $34 billion in credit union funds. WesCorp, based in San Dimas, Calif., manages $23 billion of funds for 1,100 credit unions, and is a member of U.S. Central.
NCUA acted Friday after an independent report by Pimco Investors found that the condition of bonds held by U.S. Central and WesCorp continue to deteriorate and threatened to cause more losses. U.S. Central reported Friday that unrealized losses on its books surged to $10.5 billion at the end of February, from $9.3 billion at the end of January, even after a charge of $1.2 billion the month before that pushed the central bank for credit unions $1.1 billion into the red. WesCorp, which has seen its unrealized losses mushroom well past $3 billion, reported Friday it expects to book realized losses when it completes its annual report by mid-April.
The Pimco report, which runs 4,500 pages, provides an analysis of all bonds held by U.S. Central and its 26 member corporates.
Meantime, NCUA is working to ensure that as many as eight other larger corporates, all with significant unrealized losses on their books, do not slide into similar holes. The eight corporates had a staggering $20 billion of unrealized losses on their books at the end of February.
While most of the losses are related to mortgage-backed securities, several corporates are plagued by other troubled holdings, WesCorp, for example, holds almost $600 million book value of collateralized mortgage obligations which have been written down by more than half. U.S. Central said Friday it charged off $1 million of losses on jumbo mortgages it had purchased from credit unions. Members United Corporate FCU holds tens of millions of dollars of loans in the failed Central States Mortgage Co.
