The largest corporate credit union is working toward making peace with the federal government, industry sources said.

Officials of Western Corporate Federal Credit Union, which last month received the second-worst regulatory rating, sat down with regulators Feb. 16 in a meeting both sides described as productive.

Sources stress that it's uncertain whether the San Dimas, Calif., credit union liquidity center can persuade the regulator to improve the rating. But the meeting is said to have lessened the anxieties of Wescorp chief executive Richard M. Johnson.

"Dick said he had the first good night's sleep in a month after the meeting," said one industry source close to Wescorp.

Wescorp spokeswoman Tena Lozano declined to reveal specifics about the meeting. "They had a good discussion," she said. "There's really not much more I can say than that."

A high-level regulatory official was similarly vague.

"From what I know it was a very productive meeting," said Karl Hoyle, executive director of the National Credit Union Administration.

The regulator and $13.1 billion-asset Wescorp have a history of conflict over the corporate's investment strategy, which the NCUA has long considered too aggressive. The agency has been particularly skittish ever since last year's failure of Capital Corporate Federal Credit Union, which had an investment portfolio heavily laden with collateralized mortgage obligations.

As of June 30, Wescorp had an investment portfolio of $12.9 billion, with a market value 99.1% of book.

Last month the regulator slapped a Camel 4 grade, its second-worst performance rating, on Wescorp, citing concerns with its investment strategy and internal controls, sources said..

Camel evaluates institutions according to capital, assets, management, earnings, and liquidity on a scale from 1 to 5, with 1 being the best rating.

The Feb. 16 meeting was an effort by the Wescorp board to defend its practices.

Originally the agency would agree only to meet with directors; no Wescorp executives were to be present. The Wescorp board refused, and the regulator agreed to let Mr. Johnson attend the meeting, held at the NCUA's West Coast regional office in San Francisco.

Mr. Johnson did not say a word during the meeting, one source said.

The agency is reexamining the corporate; that probe is expected to end March 7. A new Camel rating could be issued after that.

"I think the NCUA is backing off," said the industry source. "The Wescorp board kind of stood up to them, and according to the Wescorp people, the numbers aren't there to support the NCUA's case."

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