Nebraska Bank to Acquire Tiny Credit Union

Credit Union Journal is reporting that First York Ban-Corp of York, Nebraska has agreed to acquire tiny Glenvil Cooperative Credit Union of Glenvil, Nebraska in a rare acquisition of a credit union by a bank.

The $3 million-asset Glenvil approached First York about acquiring it. The credit unions was having problems hiring management.

Glenvil Cooperative is a single branch credit union that has reported small losses four years in a row and was undercapitalized with a net worth ratio of 5.4 percent as of September 30.

The deal requires approval from the Nebraska Department of Banking and Finance, the FDIC, the Federal Reserve, and the NCUA.

$5.1 Billion Owed to Treasury

Buried in the last paragraph of a NCUA press release heralding the repayment of a Medium Term Note for failed Western Corporate FCU, NCUA mentioned that agency has outstanding borrowings of $5.1 billion from the United States Treasury. This is up from $3.2 billion as of June 25, 2012.

This borrowing from the Treasury helped the Temporary Corporate CU Stabilization Fund to handle the front loaded corporate credit union resolution cost.

While credit unions are ultimately responsible for repaying this $5.1 billion in debt and have until 2021 to repay the debt, they should also recognize that they received a significant benefit from the Treasury. This made the cost of corporate credit union bailout resolution more manageable for credit unions.

Timely and Transparent Communications

Recently, a federal regulator for financial cooperatives adopted requirements on the timely disclosure of material events and senior management compensation to the owners and investors of the cooperatives.

The Farm Credit Administration (FCA) in September revised the FCA's regulations governing disclosures of senior officer compensation, supplemental retirement plans, and compensation committee responsibilities. The final rule also contains new requirements to hold nonbinding, advisory votes on senior officer compensation

In addition, the final rule requires the timely and transparent communication to shareholders and investors of significant or material events that occur at Farm Credit System institutions between annual reporting periods.

The rule requires the boards of directors to develop policies to identify events to be communicated. Notice must be made within 90 days of the event’s occurrence. The events may be communicated in either a separate notice to shareholders or as part of the quarterly report to shareholders.

If the FCA has adopted such rules for Farm Credit System associations, which are member-owned financial cooperatives, then why hasn't NCUA adopted the same disclosure requirements for federally-insured credit unions?

Glaring Omission

Recent information has disclosed that less than $130 million of the $170 million in out-of-court settlements has gone to the Temporary Corporate Credit Union Stabilization Fund (Stabilization Fund). More than $40 million of the settlement went to two law firms that employed by NCUA on a contingency fee arrangement.

However, during the October 4 Virtual Town Hall Meeting, NCUA Chairman Debbie Matz stated that the $170 million in settlements was going to the Stabilization Fund, when the agency knew this was not true.

Below are excerpts from the transcript of the Town Hall Meeting dealing with the lawsuits and the out-of-court settlements.

Todd Harper: We have a question here about the lawsuits that NCUA has been bringing. What is the latest with the lawsuits against the big lenders who caused the big losses at the corporates? Is there talk of a settlement? And I think Mike McKenna, you’re probably in the best place to answer that.

Mike McKenna: Well, we’ve sued a number of different underwriters. We’ve sued Goldman Sachs, Bank of Scotland, JPMorgan, Wachovia, UBS, and Barclays. We’ve settled with 3 underwriters. We’ve settled with Deutsche Bank, Citi Group, and HSBC for approximately $170 million.

Todd Harper: We have a question here about the $170 million that NCUA has already received to date in settlements with Wall Street financial underwriters. How will this $170 million that NCUA has collected affect future Corporate Stabilization Fund assessments charged to credit unions?

Chairman Debbie Matz: That $170 million is returned to the Corporate Stabilization Fund and is used to reduce corporate assessments going forward.

While NCUA Chairman Matz is correct that the settlements will lower future assessments, the failure to acknowledge that less than $130 million of the $170 million in settlements was being applied to the Stabilization Fund balance is a glaring omission on the part of Chairman Matz. If this information had been disclosed, it could have raised additional uncomfortable questions for the agency.

Issues NCUA's Inspector General Needs to Examine in the Hiring of Law Firms

In a recent blog post, I reported that Representative Issa requested that NCUA's Inspector General review if NCUA must comply with an executive order signed by President George W. Bush in 2007, titled "Protecting American Taxpayers from Payment of Contingency Fees." The executive order prohibits federal agencies from entering into contingency arrangements with outside law firms.

NCUA last year hired two law firms under a contingency arrangement associated with lawsuits filed against investment banks over mortgage-backed securities sold to failed corporate credit unions.

As the Inspector General conducts its review, there are several issues it should explore beyond whether the agency is subject to the 2007 executive order and whether this was the best option for the agency.

First, the Inspector General needs to review whether the bids were subjected to competitive open bidding process. It is unclear from the Wall Street Journal story whether the bidding process was open. John Ianno, the NCUA's associate general counsel, told the Wall Street Journal that he was not aware if the agency interviewed any other law firms for this work.

Second, the Wall Street Journal story noted that then-general counsel Robert Fenner, who entered into the contracts with the two law firms, worked with Mr. Frederick of Kellogg Huber at the Justice Department. Kellogg Huber was one of the two law firms selected. Did Fenner's connection with Frederick influence the awarding of the bid?

The Inspector General should disclose what factors led to the selection of the two law firms, especially Kellogg Huber.

Range of Future Assessments Shrinks

NCUA is reporting that the upper end of projected assessments associated with the Temporary Corporate Credit Union Stabilization Fund (Stabilization Fund) declined between December 2011 and June 2012.

According to the agency's analysis, the estimated range of future Stabilization Fund assessments is now between $6 billion and $8.9 billion compared to a projected range between $6 billion and $9.3 billion six months earlier.

The agency cited several factors for the narrowing of the range of future assessment estimates, including changes in housing prices, interest rates, unemployment rates and mortgage prepayments.

In addition, NCUA noted a slight improvement in the performance of the legacy assets backing the NCUA Guaranteed Notes.

Read the press release.

NCUA Liquidates Women's Southwest FCU

The National Credit Union Administration (NCUA) liquidated Women’s Southwest Federal Credit Union (WSFCU) of Dallas, Texas.

NCUA made the decision to liquidate WSFCU and discontinue operations after determining the credit union was insolvent and had no prospect for restoring viable operations.

As of the end of September 2012, the credit union had a net worth ratio of 7.54 percent. The credit union also reported that 5.07 percent of its loans were 60 days or more past due. In comparison, a year earlier the credit union reported a delinquent loan rate of 0.27 percent.

WSFCU served 743 members and had deposits of approximately $2 million.

WSFCU is the tenth federally insured credit union liquidation in 2012 and the second credit union in Texas to be liquidated this year.

Read the press release.