NCUA Action Will Lead to More Losses
The decision by the NCUA to place U.S. Central Corporate FCU and WesCorp FCU into conservatorship will result in an even higher loss compared to what was announced at the end of January.
These actions are even more surprising given the fact that no losses have been incurred as of yet in the underlying private label mortgage backed securities. This decision has wiped out over a $1 billion of natural-person's credit union capital, in addition to the 18 BPs increase in the overall impairment of NCUSIF deposit. The decision by the NCUA to accelerate these losses may in fact have unintended consequences. This decision has clearly exacerbated the situation for those credit unions based in California dealing with plummeting real estate values as well as rising unemployment.
Given that no losses have been incurred, the range of expected outcomes between NCUA numbers and WesCorp numbers is mind boggling. Modeling the expected performance is based solely on the underlying assumptions. To make these unilateral decisions without disclosing the assumption that drove these numbers is incomprehensible.
If NCUA truly believes these numbers, then what does that say about all the mortgage loans and home equity loans on all the credit union and bank balance sheets? The Obama administration has clearly taken steps to stimulate the economy and the Fed has done [its] part to help keep rates low, these measures need to be given an opportunity to work.
The decision by the NCUA was based on analysis performed by PIMCO, and the results and assumptions have not been shared with the credit unions that are directly impacted by this. The lack of transparency and the actions taken over the weekend clearly indicate to me that the wheels were in motion prior to the receipt of the PIMCO report.
I find it incredibly ironic that when the Public-Private Asset Purchase plan was reported on at the beginning of this week that PIMCO was one of the first firms who was willing to do their part to help remove toxic assets from the balance sheets of financial institutions. I don't claim to know what the contractual arrangements are between PIMCO and the NCUA, but the appearance of a possible conflict of interest cannot be ignored.
We have seen a significant increase in our member deposits since the end of 2008. We have taken the advice of the NCUA and deposited/invested those funds in our Corporate Credit Union in order to improve their liquidity. Given the decrease to net worth as a result of these actions and the increase in our balance sheet, pressure is being placed on our net worth ratio and we are aggressively cutting our share rates to discourage additional deposits.
The recent news of the conservatorship did not cause a reaction by our membership since the names of the corporates do not resonate with the average consumer. However, when all the credit unions file their first quarter 5300 reports and the losses are published, I fear our members as well as the members of all credit unions across this country will inundate the credit unions with phone calls. Bankrate and BauerFinancial update their assessments on each financial institution on a quarterly basis; the actions by the NCUA will reflect on our ratings and may erode member confidence. There are 90-million members of credit unions across the country and to have to explain the reason why this happened will be very challenging in light of all the TARP money that has been provided to banks directly.
Hudson Lee, CFO
Meriwest Credit Union
San Jose, Calif.
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