Credit unions will be charged higher insurance premiums to cover the $6 billion cost of taking over U.S. Central Federal Credit Union and Western Corporate Federal Credit Union, the National Credit Union Administration said.
Michael E. Fryzel, the agency's chairman, said Monday that it may be able to ease the blow of an estimated 100-basis-point assessment on credit unions by getting the Treasury Department to "replenish" the industry's deposit insurance fund.
"I have directed NCUA staff to explore two new avenues to augment NCUA's corporate stabilization efforts," Fryzel said. "First, we have held preliminary discussions with Congress regarding the creation of a corporate stabilization mechanism, as an adjunct to the National Credit Union Share Insurance Fund. This new mechanism would replenish the NCUSIF through an arrangement with the Treasury Department, while providing additional flexibility for credit unions to make their required contributions over a period of time."
He promised more specifics Thursday, when the agency's board is scheduled to meet.
The NCUA had committed roughly $4.7 billion to cover losses at the credit unions, but the Friday night takeover raised the cost estimates to $6 billion.
The agency estimates there is another $16.8 billion of potential credit losses on all the corporate credit unions, including U.S. Central and WesCorp, with a most reasonable estimate of losses set at $10.8 billion. That means more costs may be added to the corporate bailout.
The estimates were provided by Pacific Investment Management Co., which the NCUA hired to review the investments of U.S. Central and its 26 corporate members.
Upon taking over U.S. Central, which manages $34 billion of credit union funds, the NCUA removed the Lenexa, Kan., credit union's chief executive, Francis Lee, along with its board and supervisory committee. He was succeeded by James Nance, who was vice president for asset liability management at U.S. Central from 1993 to 1996. Most recently he was the chief administrative officer at Icap Capital Markets LLC in New Jersey.
The NCUA removed Robert Siravo as the CEO at WesCorp, which manages $23 billion of funds for 1,100 natural-person credit unions, along with the San Dimas, Calif., credit union's board and supervisory committee. Philip Perkins, who was a portfolio manager at the Delaware Diversified Income Fund, succeeded Siravo.
The two corporate credit unions are among eight large ones that have accrued almost $20 billion of unrealized losses on their investments, mostly mortgage-backed bonds. The other six are also being watched closely by the NCUA.