Saturday, September 25, 2010

Corporate CU Legacy Plan Unveiled

NCUA on Friday unveiled its plan to deal with the toxic assets on the books of corporate credit unions.

As part of its plan, NCUA assumed control of United Corporate Federal Credit Union of Warrenville, Illinois; Southwest Corporate Federal Credit Union of Plano, Texas; and Constitution Corporate Federal Credit Union of Wallingford, Connecticut.

In March 2009, NCUA placed U.S. Central Federal Credit Union in Lenexa, Kansas and Western Corporate Federal Credit Unions in San Dimas, California into conservatorship.

NCUA determined that these five corporate credit unions are not financially viable institutions because they are critically undercapitalized with high concentrations of distressed long-term assets. Without permanent government guarantees, those five corporates have no reasonable prospects of returning to independent operations.

The legacy plan unveiled by NCUA will seek to isolate the legacy assets at these corporate credit unions bu using a "Good Bank/Bad Bank" model.

"The legacy assets stay in the current charter, the “bad bank”. NCUA charters a new bridge corporate, the “good bank” which will purchase the good assets and assume the liabilities and share deposits from the conserved corporate. Simultaneous to this purchase and assumption, the conserved corporate is placed into an asset management estate."

After isolating the legacy assets, NCUA will securitize these assets. The new securities will have a guarantee from the NCUA.

For the securitization process to be successful, NCUA wrote in a letter to credit unions that "it is imperative that, at least in this interim period, credit unions maintain excess liquidity within the corporate system."

NCUA expects the cost to credit unions to conservatively range between approximately $8.3 to $10.5 billion.

Treasury secretary, Timothy F. Geithner, agreed to postpone the deadline for the credit union industry to cover the cost of the mortgage-related losses at corporate credit unions until June 2021. Previously, they had until 2016.

1 comment:

  1. Dr. Leggett,
    what do you/ncua mean by "cost to cu's to CONSERVATIVELY range $8.3-$10.5 BILLION". does that mean its likely going to cost more?
    i dont understand all the numbers being thrown around by ncua.
    they speak about $9.2Billion, BUT, if the toxic assets are $50 Billion and the market value is $25 Billion due to the CREDIT QUALITY, why arent the losses going to be alot more?
    if the $5 Billion of MCS/PIC that was extinguished for losses is subtracted from the $50 Billion, that leaves $20 Billion in potential losses left for CU's to eventually be responsible for--right?
    And then, isnt there some large/medium/small retail CU's that are going to fail?
    how does the indsutry survive this?
    if cu's dont decide to recapitalize the corporate system, what is ncua's course of action? the littler cu's still need a corporate system.
    when can we retail cu's get some STRAIGHT ANSWERS?



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