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BILL CALLS FOR GAO TO REVIEW NCUA, TAXPAYERS' TAB

WASHINGTON - A bill signed into law by President Obama last week will direct the General Accountability Office, the congressional accounting arm, to conduct of NCUA's bailout of the corporate credit union system to determine whether taxpayers have any liability in the $16-billion program engineered by NCUA and paid for by credit unions.

The GAO will also study whether NCUA's oversight of the corporates and natural-person credit union failures has been adequate. To date, NCUA has largely escaped congressional scrutiny, even as the costs of the corporate bailout have escalated from $1-billion to $6-billion, and most recently to as much as $16-billion. The GAO findings must be reported to the Senate Banking Committee, House Financial Services Committee and Financial Crisis Inquiry Commission, a bipartisan panel that is studying the causes of the 2008-2009 financial meltdown.

Passage of the bill requiring the study comes a month after NCUA Chairman Debbie Matz stressed in testimony before the Senate Banking Committee that the corporate bailout will be funded solely by credit unions and not taxpayers.

The bill also made several technical corrections to the Federal CU Act, which will allow NCUA to count federal assistance to troubled, like the agency's emergency 208 loans, as net worth when merging the troubled credit unions into healthy institutions as a way to induce more mergers of ailing institutions.

The bill also gives NCUA the power to assess credit unions a premium on the corporate bailout without incurring borrowing costs. Previously, the agency had to borrow the money from the Treasury Department to repay the fund and then assess credit unions.

 

NEGATIVE GROWTH IN BOTH SAVINGS, LOAN VEXES CUS

WASHINGTON - The dual trends of record low savings rates and the de-leveraging by consumers has created a condition seldom, if ever, seen among credit unions-stagnation-that is, declines in both deposits and loans.

Credit union deposits shrunk by 0.5% in November as $4.7 billion left the credit union system, the third month in 2010 with negative share growth, according to CUNA's monthly data. Savings are projected to rise just 4% for the year, the lowest since 2006.

Just as troubling, loans declined a second straight month, by 0.2% in November, meaning credit union loan portfolios have declined by 1.2% through the first 11 months. That's after an anemic 1.6% in 2009.

Credit unions have seen days when savings growth is low but loan growth is usually strong; and other times when loan growth is slow, but savings typically grow during those periods. But rarely are loan growth and savings growth negative at the same time, according to CUNA's Chief Economist Bill Hampel.

The November numbers mean that 2010 will be the first year since 1981 that credit unions have negative loan growth, said Hampel. That was when high interest rates combined with the the then administration's push to dampen consumer spending which eviscerated credit union lending.

This year's trend, both negative loan and savings growth, may be attributed to two factors, according to Hampel. The first is efforts by consumers to continue to pay down debt, the so-called de-leveraging of consumers, dampening loan demand. The second is the continuation of anemic rates on savings products. The average rate on regular accounts at credit unions was just 0.4% and a meager 0.6% on money market funds at the end of November, according to CUNA. These are about the lowest ever paid on savings.

As a result, it is a better deal to pay off debt than to add to savings, pointed out Hampel.

It remains to be seen what impacts the dual trends, if they continue, will have on the bottom lines of credit unions, both short-term and long-term. Hampel said he expects credit unions to report an average return-on-assets of as much as 60 basis points (0.60%) for 2009, a good performance, considering the more than 20 BPs eliminated through NCUA assessments. He said a similar ROA could be possible in 2011.

 

BILLION-DOLLAR CUS TAKE IN MORE SMALLER CUS

ALEXANDRIA, Va. - NCUA reported last week it approved the merger of troubled First Metropolitan CU, a one-time $210 million Concord, Calif.-based credit union, into $1.6-billion Travis CU, Vacaville, Calif., one of four mergers involving billion-dollar credit unions.

First Met lost $3.5 million for the first three quarters of 2010, after losing $3.6 million in 2009, while its net worth ration declined to just 3.3% at Sept. 30.

Also approved was Eastman CU's ($2.4-billion) acquisition of Holston Valley FCU ($12 million); Affinity Plus FCU's ($1.3-billion) deal for Commo Northtown Community FCU ($36-million) and Ascend FCU's ($1.4-billion) merger with Co-Op Employee CU ($3 million).

NCUA also approved the merger of First Service FCU and Right Choice FCU creating a $300 million Houston credit union, and Mainstreet FCU, the fourth largest credit union in Kansas, to acquire $13-million Wyandotte FCU.

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