September 24, 2010 - This Friday the National Credit Union Administration seized three Corporate Credit Unions. Illinois based United Corporate Federal Credit Union; Southwest Corporate Federal Credit Union of Plano, Tex. and Constitution Corporate Federal Credit Union of Wallingford, Conn., takes to five the number of Corporate Credit Unions under government control since March 2009 when they took over Western Corporate Credit Union of San Dimas, CA and US Central of Lenexa, KS.
Corporate Credit Unions, are not natural person Credit Unions in that they don’t serve the general public but provide liquidity and payment services and other facilities to traditional natural person Credit Unions.
In response the NCUA has posted on its website its 3 phase “Corporate System Resolution Plan (CSR)” from within it makes its announcement that it has conducted these takeovers in the “Resolution” section that spells out the three steps of the stabilization “Resolution Phase” which apparently began in March 2009 before such a plan was reported.
The NCUA resolution strategy has three key components:
1. Isolate and fund legacy assets - Legacy assets will be segregated and managed in an asset management estate. The legacy assets will be securitized. This strategy will result in a lower overall cost of resolution than immediate outright sale of the legacy assets and will also allow the costs of resolution to be funded over ten years rather than immediately. By lowering the overall cost and spreading the assessment period over ten years, the NCUA plan minimizes impact on credit unions and provides adequate time to plan for and adjust to the assessments.
2. Conservatorship of five critically undercapitalized corporate credit unions – U.S. Central Corporate FCU in Lenexa, KS; Western Corporate FCU in San Dimas, CA; Constitution Corporate FCU in Wallingford, CT; Members United Corporate FCU in Warrenville, IL; and Southwest Corporate FCU in Plano, TX.
3. Establishment of bridge corporate credit unions to conduct essential activities of the conserved corporate credit unions with no interruption in member services, particularly facilitating payment and settlement services
Provided the methods and procedures used in the takeovers of Wescorp and US Central are replicated in the newest takeovers, it can be expected that the Boards of Directors and Senior Executives will be or have been dismissed and will be replaced by NCUA selected personnel. Whether or not civil suits are brought about against these persons, as was done in the previous takeovers, will play itself out as the consequences of this takeover play themselves out. It is likely the NCUA will require recapitalization of the impaired assets by requiring 13%-15% assessments on the natural person Credit Unions. This will cause profit losses and net Worth Ratio issues with some Credit Unions that may cause failures.
Should this takeover resemble its preceding takeovers, requests for information on the data utilized to ascertain the valuations justifying the takeovers will either be initially denied or eventually released under the Freedom of Information Act. When such requests were made in the Wescorp takeover, redacted (blacked out) copies were released that failed to provide any financial data.
NCUA Chairman Debbie Matz posted the following statement. “NCUA has a responsibility, first and foremost, to protect the interests of consumers. Our solution is predicated on this very principle.” She also stated “The costs will be borne entirely by the credit-union industry. This plan puts consumers first and ensures that there will be no loss to taxpayers. This plan also provides an orderly transition to a new regulatory regime for corporate [credit unions].”
It appears as though Credit Unions in the affected regions will suffer the same pains as its preceding Credit Unions have under this “regime”. Let us pray they fare better than many of those before them.
