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NEW NCUA CHARGE GREETED BY CUS' WEARY RESIGNATION

WASHINGTON-Credit union executives were cautiously optimistic that NCUA's latest assessment is smaller than many budgeted for, but are resigned to keeping their checkbooks open for annual-or even semi-annual-payments to the federal regulator as the industry digs out of its deepest hole ever.

"It's better than we anticipated," Greg McClellan, president of Max FCU, said of NCUA's new 12.4-basis point assessment. But McClellan said he clearly expects his credit union will continue to send funds to Washington, even as the $1.7 million it send to NCUA this year in the way of a corporate bailout and NCUSIF assessment eats up almost 20% of its net income.

Executives were cheered that the combination of the most recent 12.4-bp assessment and the previous 13.4-bp assessment back in July is still less than the 40 bps to 45 bps for which NCUA recommended credit unions budget. But many are worried the charge, the third in 18 months, could erase much of their net income, even threaten the viability of some institutions.

"I'm encouraged by 12.4 basis points, compared to what we had budgeted," said Glenn Strebe, president of Air Academy FCU, "at the same time, this is just the start." The $475-million Colorado Springs credit union will be sending almost $800,000 to NCUA, almost 90% of its net income for the first six months of the year.

"In the future we're going to have more assessments, I think we all know that," said Bohdan Watral, president of Self-Reliance Ukrainian American FCU, in Chicago. "There's going to be additional natural person credit union failures in the future and more costs for the corporates. We're going to be paying for this for years."

"The pain is going to continue for a substantial period of time," Watral, whose credit union will send some $1.5 million to NCUA this year, told the Credit Union Journal.

"Everyone learned two years ago that we're in this as an industry," said Rod Taylor, president of Barksdale FCU, which will send more than $1 million to NCUA. "I think we all realized that we have a responsibility to the industry, as well as to the credit union itself."

John Milazzo, president of Louisiana's Campus FCU, lamented that the new NCUA charges comes just as his $440-million credit union is digging itself out of a hole that has left it in the red for the past six quarters. "It's been tough," said Milazzo, who has seen his core student loan business erased over the past two years and is working to maintain member services, as he prepares to write a $700,000 check to NCUA.

 

CONSOLIDATION IN STUDENT LOANMKT AS CITI SELLS OUT

NEW YORK-Citigroup said it agreed to sell the nation's third largest student loan operation in two parts, to the biggest student lender Sallie Mae, and to Discover Financial Services.

Under the terms of the complex deals, Discover will pay $600 million for the Student Loan Corporation, in which Citigroup holds an 80%. Sallie Mae will acquire about $28 billion in loans held by the loan corporation, the bulk of which are guaranteed by the government, for about $1.2 billion. After the deal, Sallie Mae will manage or service about $200 billion in federal student loans.

Discover will end up with $4.2 billion in private loans with no government guarantees, at about an 8.5% discount from their face value.

Citigroup will sell another $4.7 billion in loan assets to the Education Department as part of a program put in place at the height of the crisis to support the student lending market.

Citigroup will keep the remaining assets, totaling about $8.7 billion, and ultimately sell them to private investors.

Sallie Mae, formally known as SLM Corp., is both the largest originator and servicer of student loans, while Discover Financial is the fifth biggest servicer, with a portfolio of $1 billion. Citi's Student Loan Corp. is the third biggest lender, behind Sallie Mae and JP Morgan Chase.

Many private student lenders are pulling out of the business because of new rules enacted by Congress this year that effectively ended the guaranteed Family Federal Loan Program, which allowed banks to issue student loans backed by the government. The new rules, which took effect on July 1, have the government lending directly to students.

Citigroup will take a $500 million loss on the deals, resulting in a write-down for the third quarter, but in the process it will unload nearly $40 billion in student loans from its books.

 

SIX BANKS SHUTTERED, MAKING 125 FAILURES FOR THE YEAR

WASHINGTON-Banking regulators, which had been quiet the prior two weeks, closed down six institutions in four states recently, bringing the total number of failures to 125 for 2010.

The most recent failures included three more Georgia banks: $447 million The People's Bank, in Winder; $248 million First Commerce Community Bank in Douglasville; and $169 million Bank of Elijay. The assets of all three failed banks were acquired by Community & Southern Bank, Carrollton, which was formed in January when it acquired the failed First National Bank of Georgia. Community & Southern also purchased the failed Appalachian Community Bank of Ellijay from the FDIC in March.

Also closed on Sept. 17 were: Maritime Savings Bank, a $350 million bank in West Allis, Wis.; ISN Bank, an $82 million bank in Cherry Hill, N.J. and Bramble Savings Bank, a $47 million institution in Milford, Ohio.

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