MANY CORPORATE ACCOUNTING DETAILS STILL NOT RELEASED
WASHINGTON-A series of reports released over the past month have shed new light on NCUA's corporate resolution program, but much of the estimated $16-billion program remains to be seen.
A CPA audit of the Temporary Corporate CU Stabilization Fund, for instance, details some of the government subsidies being used to finance the resolution. The fund, for example, borrowed $6 billion from the U.S. Treasury's Federal Financing Bank at a special government rate of just 0.165%, saving credit unions millions of dollars in interest charges.
The KPMG audit and a subsequent report issued by the Government Accountability Office, the auditing arm of Congress, also explained the complex chain of borrowings NCUA undertook to keep U.S. Central FCU and WesCorp FCU afloat in the days following their March 20, 2009 conservatorships. At that point, the Central Liquidity Facility, the emergency loan fund managed by NCUA but actuality owned by U.S. Central, was barred by law from lending money to corporate credit unions. But NCUA was able to funnel $10 billion in a federally subsidized Treasury loan to the CLF, then on to the National CU Share Insurance Fund, and finally to U.S. Central and WesCorp.
This $10-billion Treasury loan and a subsequent $6 billion Treasury loan NCUA used to capitalize the new corporate stabilization fund were required by a federal law, the Federal Credit Reform Act, to be put on the federal budget and counted against the budget deficit-until the loans are repaid. NCUA said last week it has repaid the $10 billion that kept U.S. Central and WesCorp afloat. It has also paid down $2.5 billion of the stabilization loan fund, leaving it with a balance of $3.5 billion, all of which is accounted for in the federal budget.
Officials at the Congressional Budget Office, which scores all government spending and receipts, said last week the $28 billion of NCUA Guaranteed Notes used to finance the corporate program will also count against the budget if and when any losses are realized on the bonds and the federal guarantee has to be used.
Keeping Costs Off Taxpayers
Why is this important? Because NCUA and the credit union movement want to make sure that none of the costs of the corporate resolution remain on the budget and are therefore borne by the U.S. taxpayers. The GAO said the continued corporate resolution poses a potential risk to the U.S. taxpayers if credit unions, which have already lost almost $10 billion on the corporate debacle ($6.5 billion of their capital and $3.3 billion in assessments paid to NCUA), are unable to pay the total cost of the program.
Such a possibility coud have political implications for credit unions and their federal tax exemption. Credit unions, for example, sometimes justify the tax exemption by telling Congress they have never required a taxpayer bailout, like the S&Ls and commercial banks have.
But some of the most interesting details of the corporate program were revealed in the GAO report, which bears the technical title "Earlier Actions Are Needed to Better Address Troubled Credit Unions." The report takes NCUA to task for its accounting for the losses of the failed corporates and the estimates it gave the public; first, $1 billion when that amount was infused into U.S. Central in January 2009, then $6 billion when U.S. Central and WesCorp were taken over, then as much as $16 billion as three more corporates were seized and the extent of the mess was becoming clear.
However, the most critical conclusion of the report may be the GAO's assertion that NCUA acted too slowly in intervening in both the failed corporates and dozens of smaller natural-person CUs that eventually failed. NCUA typically places a troubled natural-person credit union into conservatorship while it still has some capital in order to engineer a merger; in the case of the corporates, however, NCUA did not take action until all capital had been erased. That means when NCUA finally took over the five corporates-including Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU, as well as U.S. Central and WesCorp-the institutions had negative net worth-nothing with which to stage a comeback.
Yet another report, this one issued by NCUA on its website, promises to disclose even more information to the public going forward. Statements at NGN (NCUA Guaranteed Notes) Program Information for the first time acknowledge the loss of capital among credit unions in the ultimate cost of the corporate failures to the credit union movement. The five corporate failures, for example, represent $5.6 billion in capital owned by their members (knowledgeable observers say as much as another $1 billion of CU capital was erased at other corporates).
Theme: Slow To Act
The one theme that seems to wind throughout the flurry of reports is the slowness of the federal agency to act. The CPA audit for the resolution fund for 2010, for example, was released on Dec. 27, a good six months after NCUA typically releases such audits, and the figures are now outdated
For its part, the GAO says NCUA was too slow to intervene in the corporate failures. Even data for loss projections on the $28 billion of NGN Notes, which NCUA said will be provided monthly, are as of June 30, 2011, six months ago.
Even so, many details surrounding NCUA's development and management of the corporate program remain unknown. CU trade groups have been unable to access the loss estimates provided to NCUA by PIMCO Investors, and data on the NGN Notes compiled by Barclay's Capital, which underwrote the notes, are still not available to the public.
