Capital Corporate Federal Credit Union has placed a 60-day hold on withdrawals as it negotiates a merger with Western Corporate Federal Credit Union.
The freeze "is intended to help Capcorp make an orderly, timely, and voluntary merger," according to a news release. The liquidity center, based in Lanham, Md., can still lend and provide lines of credit to its 450 members.
Capcorp, which has $1.5 billion of assets, entered talks with Western Corporate because it could not meet the liquidity demands of its membership, said Pat Keefe, a spokesman for National Association of Federal Credit Unions. He denied that Capcorp had suffered a run'
"Capcorp had a number Of investments tied up in CMOs [collateralized mortgage obligations! and repos [repurchase agreements] and couldn't access cash without taking a loss" because the investments were devalued by interest-rate increases, Mr. Keefe said.
Capcorp had borrowed to keep up with demand, but it reached its limit of $450 million on Dec. 7. The National Credit Union Administration denied Capcorp's request to tap a $1 billion line of credit.
Further borrowing by Capcorp "would've made the situation worse," said Bob Loftus, director of public and congressional affairs for the NCUA.
After the NCUA's rejection, the Capcorp board imposed the hold and decided to open negotiations with $12.2 billion-asset Wescorp, San Dimas, Calif.
Recently the NCUA forced Capcorp to divest two CMOs for a $1.4 million loss. Mr. Keefe said he did not know whether more investments would have to be divested.
Margaret Blankers, senior vice president of public relations for Wescorp., said she could not predict whether the merger would be implemented. "It's just a matter of whether the numbers show it's the right thing to do," she said. "We don't want to be in the position of absorbing big losses."
Mr. Keefe said he didn't know what would happen if the merger collapsed. "They'll either have to seek another merger partner or find an alternative," he said. Capcorp "isn't in danger of insolvency."