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NCUA takes action on legacy assets; seizes three corporates

The NCUA board met Friday afternoon to discuss, among other agenda items, the corporate credit union system and legacy assets. The NCUA announced at the meeting that it has placed an additional three corporate credit unions into conservatorship: the $7.4 billion Members United Corporate FCU, the $9.5 billion Southwest Corporate FCU and the $1.2 billion Constitution Corporate FCU because they were undercapitalized. These three conservatorships are in addition to 2009 conservatorships of Western Corporate FCU of California and U.S. Central Corporate FCU of Lenaxa, Kansas.

“The steps NCUA has taken today represent a comprehensive solution to the problems afflicting the corporate credit union system," said NCUA Chairman Debbie Matz. "Just as important, 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 corporates. In addition, we are affording local credit unions greater choice in selection of their liquidity and back office provider.”

With Friday's actions by the NCUA, it now holds 70 percent of all assets held in corporate credit unions and 98 percent of the distressed, so-called "legacy assets" that have caused the corporate credit union system problems. The legacy assets are made up primarily of private label, residential mortgage-backed securities that were significantly devalued during the turmoil in the overall mortgage market.

In addition to the conservatorships, the NCUA developed a plan to deal with legacy assets and issued new corporate regulations.

The initial step is isolating the impaired securities (legacy assets) held by these five corporates by:

  • Repackaging the legacy assets into new securities with a NCUA guarantee
  • Issuing the new securities to investor on the open market
  • Transferring performing assets to newly created “bridge banks” that allow for continued operations
  • Transitioning operations of the credit unions now under NCUA conservatorships over a target of 24 months to other service providers

Finalizing a set of stronger regulations that include:

  • Stronger capital requirements and Prompt Corrective Action for corporates
  • Concentration limits on investments that will require corporates to diversity their portfolios
  • Improved asset-liability management requirements to avoid liquidity and interest rate risks
  • Raises governance standards to improve levels of experience and expertise on corporate boards

"The NCUA’s announcement of taking three more corporate credit unions under conservatorship was unfortunate but probably necessary," said LSCU President/CEO Patrick La Pine. "We are fortunate here in Alabama and Florida that Corporate America and Southeast Corporate both have strong leadership and business plans to move these corporates forward under the new regulations. The hope now is that with the NCUA holding 98 percent of the toxic assets of the corporates, we won’t see any more corporates go into conservatorship. I’m also pleased that the NCUA’s corporate credit union plan incorporated many of the ideas brought forth from the CUNA Corporate Task Force chaired by VyStar CEO Terry West."

Because of the significance these changes, the NCUA has scheduled a free Webinar Monday afternoon from 3 -5 p.m. (EST). The session will also provide an update on the NCUA's plan to resolve corporate legacy assets. Participants may submit questions in advance of the live session. Registration is currently open. Click here to register for the free webinar.

NCUA Chair Debbie Matz also sent a letter to credit unions about the NCUA's plan. You can read that letter by clicking here. Plus, the NCUA has links to its corporate page, legacy assets and conservatorship page and a news release on actions taken by the NCUA.

The LSCU will continue to review Friday’s actions by the NCUA, and will be providing credit unions with more in-depth analysis of how these changes will be effected, and what they mean for credit unions. If you have any questions about the NCUA's actions, contact LSCU VP, Regulatory Affairs Bill Berg at 866.231.0545 ext. 1028 or LSCU Director, Compliance Scott Morris at ext. 2165.