NCUA'S CORPORATE FIRE SALE RAISES ALMOST $18 BILLION
WALL STREET-NCUA said its recent sale of $1.16 billion of NCUA Guaranteed Notes made a total of $17.8 billion the agency has raised from investors to help finance the industry's corporate bailout.
Proceeds from the notes will be used by NCUA to pay out depositor CUs that had almost $40 billion deposited with WesCorp FCU, Members United Corporate FCU, Southwest Corporate FCU and Constitution FCU. The proceeds from the offerings will be used along with loans from the U.S. Treasury to finance the bailout, as NCUA has proceeded with the liquidation of the five corporates.
NCUA has created the notes by collecting all of the assets from the failed corporates in a trust, using the cash flows on all of the investments then adding a federal guarantee. The investments themselves, many of which are continuing to go bad, continue to be held in the trusts, where any additional losses will eventually be realized by NCUA, and thus the CU industry. Losses on the corporates are currently projected to be as much a $16 billion. NCUA Chairman Debbie Matz told Congress last week she expects CUs to pay for all of the losses. "NCUA's ongoing efforts to resolve the corporate situation have yielded very positive results," said Matz. "The financial success of the securitization is not only enabling NCUA to manage the disposition of troubled corporate credit unions, it is also allowing the credit union industry to pay for the losses without diminishing service to consumers."
Through the recent offering NCUA had sold about 60% of a planned $35 billion worth of the notes to Wall Street investors. The sales, which are being managed by Barclays Capital, will continue in the first quarter of 2011.
1 CORPORATE PER CU PROPOSAL IS BAD IDEA, COMMENTERS SAY
ALEXANDRIA, Va.-A proposal by NCUA to restrict credit unions to membership in a single corporate could be prove to be anti-competitive and drive credit unions outside the corporate system for vital services, credit unions are telling NCUA.
"In general this would certainly limit the choices for credit unions and would take away the incentive of corporate credit unions to remain competitive," said New York's Actors FCU President Jeff Rodman, in a comment letter to NCUA. "Non-competitive corporate credit unions would soon find little need to deliver top quality services at competitive prices."
"If we could not make investments in another corporate you are basically telling me how to run my credit union, when that is up to our credit union's Board of Directors," wrote Jennifer Tiedman, president of First Pace CU, West St. Paul, Minn. "This proposed amendment is restricting free market enterprise and could create a monopoly by limiting choice."
The one corporate rule is part of a number of amendments NCUA is proposing to its new corporate regulation and is aimed at discouraging corporates from offering ever-higher rates in order to attract more money-the main cause identified in the failure of WesCorp FCU.
In addition, multiple corporate memberships meant that thousands of CUs were wounded multiple times because they held capital in more than one of the corporate failures, WesCorp, Southwest Corporate FCU, Members United Corporate FCU and Constitution Corporate FCU. Actors FCU, for example, has membership in four different corporates, including Members United and Constitution.
But several commenters said that higher rates is just one of the numerous reasons CUs may join multiple corporates. Sharon Davidson, president of Dyersburg (Tenn.) CU, said her $12-million credit union has been a long-time member of its home state Volunteer Corporate CU, but recently joined Southwest Corporate FCU for its asset liability management services, and this summer joined Corporate One FCU to access its new private student loan program offered in conjunction with Sallie Mae. "Different corporates have different things available and we should not be restricted to only one," wrote Davidson.
"The regulation," commented Tommy Cobb, president of Tuscaloosa (Alabama) CU, "has the unintended effect of focusing only on 'rate shopping.' Corporate correspondent services such as ACH settlement, cash delivery, wire transfers and other partnerships that leverage the economy of scale corporates provide are more important to a CU my size than rates. A mandate to limit membership to one corporate will drive up the cost to a natural person credit union which in turn drives up cost to members."
Dan Morrisey, president of Queen of Peace Arlington FCU, in Arlington, Va., said the restriction will force CUs to go outside the CU system for services. "I am therefore concerned that if the proposed NCUA rules are adopted that we, as well as many other credit unions, may be unable to get the required services from a corporate credit union because we must become a member (with a commitment to permanent capital) before getting services, but can not leave a current corporate credit union because our capital is 'permanent.'"
Cobb said he believes competition has been good. "Competition did not cause the corporate meltdown because there are corporates remaining that are healthy. The problem was greed and complacency," he wrote. "Unfortunately, regulations don't fix that kind of problem."