ALEXANDRIA, Va. – Members of WesCorp FCU, describing the devastating effect of last month’s failure of the corporate credit union giant, are petitioning NCUA for repayment of their lost capital.
Executives with California and Nevada credit unions are urging NCUA in comment letters on proposed reforms to the corporate system to seek restoration of some of the $2 billion the WesCorp members were forced to charge-off after NCUA’s March 20 conservatorship of WesCorp and U.S. Central FCU.
"The Agency, should determine a regulatory or legislative solution to restore some or all of the member equity at WesCorp," wrote Marianne Blitsche, president of Pacific Oaks FCU. "AIG, BAC, Citigroup and others were technically insolvent and bailed out by the government, yet their shareholders were left with some, albeit significantly impaired, equity. A similar solution for credit unions should be explored."
Teresa Halleck, president of The Golden 1 CU, suggested that NCUA enact a plan to repay members of WesCorp on their losses as NCUA receives payments on the WesCorp bonds.
"In the long-term," wrote Halleck, "careful tracking should be put in place to ensure those
natural person credit unions that suffered losses related to WesCorp capital write-downs are made whole as these long-term securities continue to be held to maturity - per NCUA's stated intention - and repay."Mark Holbrook, president of Evangelical Christian CU, urged NCUA to assure members of the two seized corporates that any recovered capital will be returned to them over the next several years as their portfolio of securities runs off and is eventually sold in a normal market. "These are credit union members’ funds, not the Agency’s and should not become fodder for windfall hedge fund profits," wrote Holbrook.
"We are at a "‘Tipping Point,’" wrote Warren Nakamura, president of Honolulu FCU, a WesCorp member, "and the decision to write off 100% of capital in U. S. Central and Wescorp in March may have a major impact on the size of the credit union movement in the future and the extend to which credit unions can meet the borrowing needs of Americans."
Comments submitted to NCUA by WesCorp members illustrate a dire situation in the $23 billion corporate’s two main states as a result of the costs associated with the failures of WesCorp and U.S. Central, in which both holdings of membership capital shares and paid-in-capital were all wiped out. In the case of WesCorp that amounted to almost $2 billion belonging to 1,022 credit unions, a large number of which are in California and Nevada.
The California CU League estimates that 478 credit unions in the two states–97% of the total–will fall into the red in 2009, with as many as 58 credit unions falling under minimum capital standards. California credit unions made up 6% of the 1,032 credit union branches closed last year, and first quarter numbers show an acceleration of this trend, according to the league.
"It’s clear that in both states–where fallout from the housing crisis has already taken a toll on the financial health of some credit unions–such an unexpected jolt could have a debilitating, long-lasting, and systemic effect on many credit unions, as well as the communities they serve," wrote Jim Ott, president of UNCLE CU.
