An opinion by the U.S. District Court for the District of Maryland stated that federally chartered credit unions cannot gain access to the federal courts by claiming state citizenship.
Pentagon FCU (PenFed) sought to move a civil suit from Maryland state court to federal court in Maryland claiming Virginia citizenship. Federal law states that federal district courts “have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between citizens of different States.” PenFed claimed that a federally chartered credit union should be deemed to be a citizen of the state in which its “principal place of business” is located for diversity purposes.
However, Judge Roger W. Titus disagreed and wrote: “Congress has chosen to confer citizenship status on some federally chartered corporations, but not on federal credit unions. In the absence of congressional action, this Court cannot confer state citizenship on PenFed.” The Judge remanded the case back to the Circuit Court for Montgomery County.
The decision in Northern Virginia Foot & Ankle Associates LLC v. Pentagon Federal Credit Union could have broader implications because it affects federally chartered credit unions as a class of institutions.
Read the decision.
Sunday, January 30, 2011
Friday, January 28, 2011
ABA Opposes NCUA's Equitable Sharing of TCCUSF Expenses Proposal
In a comment letter filed with National Credit Union Administration (NCUA), ABA opposed the NCUA’s proposed amendment to its corporate credit union regulation that would require all corporate credit unions members -- both federally insured and non-federally insured -- to share the Temporary Corporate Credit Union Stabilization Fund’s expenses equally.
Under the proposal, the NCUA Board would ask non-federally insured corporate members to make voluntary payments to the TCCUSF when the board assessed a fund premium on federally insured corporate members. If a non-federally insured member declined to make the requested payment, or made a payment for a lesser amount, the corporate credit union would hold a vote on whether to expel the member.
ABA opposed the proposed amendment because it shifts a portion of the TCCUSF’s cost from federally insured to non-federally insured corporate members. The comment letter stressed that: the TCCUSF’s creation directly benefited the National Credit Union Share Insurance Fund and federally insured credit unions, not non-federally insured credit unions; the proposed amendment exceeds the NCUA’s statutory authority; and the proposed payment by non-federally insured credit unions to the TCCUSF is neither a gift, nor is it voluntary.
To read ABA's comment letter, click here.
Under the proposal, the NCUA Board would ask non-federally insured corporate members to make voluntary payments to the TCCUSF when the board assessed a fund premium on federally insured corporate members. If a non-federally insured member declined to make the requested payment, or made a payment for a lesser amount, the corporate credit union would hold a vote on whether to expel the member.
ABA opposed the proposed amendment because it shifts a portion of the TCCUSF’s cost from federally insured to non-federally insured corporate members. The comment letter stressed that: the TCCUSF’s creation directly benefited the National Credit Union Share Insurance Fund and federally insured credit unions, not non-federally insured credit unions; the proposed amendment exceeds the NCUA’s statutory authority; and the proposed payment by non-federally insured credit unions to the TCCUSF is neither a gift, nor is it voluntary.
To read ABA's comment letter, click here.
Thursday, January 27, 2011
Will Merger-related Share Adjustments Become the Norm?
Effective January 27th, NCUA is going to require new information to be reported in credit union mergers explaining whether a share adjustment will be paid to members of the merging credit union. While the rule does not require such share adjustment payments, these payments may become the norm.
Section 708b.103(a)(5) of the rule will require, where the net worth ratio of the merging credit union exceeds the net worth ratio of the continuing credit union by more than 500 basis points, an explanation of the factors used in establishing the amount of any proposed adjustment or in determining no adjustment is necessary.
The NCUA Board contends that where a net worth disparity exists, the merging credit union members need to know how any merger dividend, if a merger dividend is offered, was calculated. However, the NCUA Board stated that the disclosure of this information is not intended to require a share adjustment payment.
But the discussion ot the final rule shows that some within the credit union industry see it quite differently. Despite NCUA's statement that the regulation does not mandate a share adjustment payment, I suspect the case can easily be made that such disclosures will cause the members at a credit union with a higher net worth ratio to seek compensation for the dilution of their ownership interests in return for their support of the merger.
Also, the rule will require that any "merger-related financial arrangement" be disclosed. A merger-related financial arrangement is defined to include any
increase in direct or indirect compensation to board members or senior management officials that exceeds the greater of 15 percent or $10,000.
To read the rule, click here.
Section 708b.103(a)(5) of the rule will require, where the net worth ratio of the merging credit union exceeds the net worth ratio of the continuing credit union by more than 500 basis points, an explanation of the factors used in establishing the amount of any proposed adjustment or in determining no adjustment is necessary.
The NCUA Board contends that where a net worth disparity exists, the merging credit union members need to know how any merger dividend, if a merger dividend is offered, was calculated. However, the NCUA Board stated that the disclosure of this information is not intended to require a share adjustment payment.
But the discussion ot the final rule shows that some within the credit union industry see it quite differently. Despite NCUA's statement that the regulation does not mandate a share adjustment payment, I suspect the case can easily be made that such disclosures will cause the members at a credit union with a higher net worth ratio to seek compensation for the dilution of their ownership interests in return for their support of the merger.
Also, the rule will require that any "merger-related financial arrangement" be disclosed. A merger-related financial arrangement is defined to include any
increase in direct or indirect compensation to board members or senior management officials that exceeds the greater of 15 percent or $10,000.
To read the rule, click here.
Wednesday, January 26, 2011
SNL Publishes Two Part Series on Credit Union Failures
SNL Financial (Charlottesville, Virginia) recently published a two part series on credit union failures.
While there have been fewer credit union failures than bank failures since the beginning of 2009, the credit union industry saw a higher proportion of its assets fail. This higher proportion of assets in failed credit union is attributable to the conservatorship of the largest corporate credit unions.
The first article examined the failures of consumer credit unions. (click here to read) The second article looked at the failures of corporate credit unions. (click here to read)
Permission to link to the articles granted by SNL Financial.
While there have been fewer credit union failures than bank failures since the beginning of 2009, the credit union industry saw a higher proportion of its assets fail. This higher proportion of assets in failed credit union is attributable to the conservatorship of the largest corporate credit unions.
The first article examined the failures of consumer credit unions. (click here to read) The second article looked at the failures of corporate credit unions. (click here to read)
Permission to link to the articles granted by SNL Financial.
Tuesday, January 25, 2011
State Chartered CU Compensation, 2008
I've recently received a request to update a post regarding the total compensation of senior management at large state chartered credit unions.
Below is the compensation data from Form 990 filings for these large state chartered credit unions (click on the images to enlarge).
I was not able to locate the Form 990 for several credit unions and federal credit unions are excluded from this analysis because they are exempt from filing Form 990s.
Total compensation includes base compensation, bonus and incentive compensation, other compensation, deferred compensation, and nontaxable benefits.
Below is the compensation data from Form 990 filings for these large state chartered credit unions (click on the images to enlarge).
I was not able to locate the Form 990 for several credit unions and federal credit unions are excluded from this analysis because they are exempt from filing Form 990s.
Total compensation includes base compensation, bonus and incentive compensation, other compensation, deferred compensation, and nontaxable benefits.
Friday, January 21, 2011
More on NCUA's PCA Proposal
NCUA Chairman Matz is recommending that Congress modify the net worth standards to grant prompt corrective action (PCA) forbearance for qualifying credit unions.
Qualifying credit unions will need to demonstrate that the decline in net worth was due to share growth – what the agency has sometimes referred to as “induced growth” – and not due to poor management or material unsafe and unsound practices.
Credit union officials have argued that rapid inflows of deposits due to “flight to safety” might lower net worth ratios and trigger PCA restrictions. These industry officials have suggested that the capital constraints PCA imposes will force credit unions to turn away deposits and reduce services so as not to dilute or decrease their net worth ratios.
We need to remember that the purpose of PCA is to curb aggressive growth. Rapid growth is a common attribute of depository institutions that failed.
Furthermore, the Government Accountability Office in 2004 wrote:
Moreover, ABA wrote in 2003:
Therefore, the decline in the net worth ratio – whether it is from inflow of deposits or poor management – should not have any bearing on net worth requirements for prompt corrective action.
Qualifying credit unions will need to demonstrate that the decline in net worth was due to share growth – what the agency has sometimes referred to as “induced growth” – and not due to poor management or material unsafe and unsound practices.
Credit union officials have argued that rapid inflows of deposits due to “flight to safety” might lower net worth ratios and trigger PCA restrictions. These industry officials have suggested that the capital constraints PCA imposes will force credit unions to turn away deposits and reduce services so as not to dilute or decrease their net worth ratios.
We need to remember that the purpose of PCA is to curb aggressive growth. Rapid growth is a common attribute of depository institutions that failed.
Furthermore, the Government Accountability Office in 2004 wrote:
“[A]ctive asset management is a major component of the operations of any financial institution. Credit union managers are expected to manage the growth of their institutions so that an influx of member deposits would not cause the credit union to become subject to PCA.”
Moreover, ABA wrote in 2003:
“ABA finds the NCUA’s concept of “induced growth” somewhat illogical. Surely one of the few things truly controllable by a financial institution is the ability to limit too rapid growth.“
Therefore, the decline in the net worth ratio – whether it is from inflow of deposits or poor management – should not have any bearing on net worth requirements for prompt corrective action.
Wednesday, January 19, 2011
State Employees' CU Seeks to Set the Record Straight
Earlier this week, I did a post based on a column by Gretchen Morgensen of The New York Times. Jim Blaine, President of State Employees' Credit Union, wrote Ms. Morgensen seeking to set the record straight. Jim Blaine asked that I publish his letter. Below is his letter.
REF: Article: Arbitration, Litigation, Aggravation
Dear Ms. Morgenson:
Was, of course, surprised to find from your article that State Employees’ Credit Union was an abuser of widows and orphans! Certainly not how SECU is generally viewed, nor an impression supported by the facts in the case.
Believe your readers would like to know:
1) Ms. Cohen purchased the investment in question from XCU Capital brokerage in September 2005. Ms. Cohen has never had an account with SECU.
2) The XCU Capital brokerage investment representative on the transaction, Mr. James Trujillo, was working through USE Credit Union in San Diego, California.
3) In September 2007, XCU Capital was acquired by the brokerage firm LPL located in Boston, Massachusetts. Individual brokerage accounts were transferred from XCU Capital to LPL.
4) In January 2008, SECU acquired the corporate brokerage “shell” of XCU, after all accounts had been transferred, and our “due diligence” found no existing complaints/liabilities associated with XCU Capital.
5) The brokerage charter was moved to North Carolina and renamed SECU Brokerage Services in May 2008. Ms. Cohen does not have an account with SECU Brokerage.
6) Ms. Cohen’s complaint was filed in May 2009. (So much for our liability research!)
7) SECU, under California law, has been placed in the position to arbitrate/litigate this matter. A position which continues to amaze us! All parties currently characterize themselves as victims!
The merits of this case do need to be resolved, but hopefully you can understand our concern with the implications of your article. We would like to yell slander, libel, retraction, apology; but perhaps from the New York Times perspective, the word “treasonable” best applies. Treasonable? Yes, treasonable, since many of your critics say The Newspaper has lost its way, is past its prime, and the quality of journalism represented by your article certainly gives “aid and comfort” to your enemies!
Definitely not up to “the standard of the Times”, nor Pulitzer quality. You smeared us all.
Jim Blaine
President
State Employees' Credit Union
REF: Article: Arbitration, Litigation, Aggravation
Dear Ms. Morgenson:
Was, of course, surprised to find from your article that State Employees’ Credit Union was an abuser of widows and orphans! Certainly not how SECU is generally viewed, nor an impression supported by the facts in the case.
Believe your readers would like to know:
1) Ms. Cohen purchased the investment in question from XCU Capital brokerage in September 2005. Ms. Cohen has never had an account with SECU.
2) The XCU Capital brokerage investment representative on the transaction, Mr. James Trujillo, was working through USE Credit Union in San Diego, California.
3) In September 2007, XCU Capital was acquired by the brokerage firm LPL located in Boston, Massachusetts. Individual brokerage accounts were transferred from XCU Capital to LPL.
4) In January 2008, SECU acquired the corporate brokerage “shell” of XCU, after all accounts had been transferred, and our “due diligence” found no existing complaints/liabilities associated with XCU Capital.
5) The brokerage charter was moved to North Carolina and renamed SECU Brokerage Services in May 2008. Ms. Cohen does not have an account with SECU Brokerage.
6) Ms. Cohen’s complaint was filed in May 2009. (So much for our liability research!)
7) SECU, under California law, has been placed in the position to arbitrate/litigate this matter. A position which continues to amaze us! All parties currently characterize themselves as victims!
The merits of this case do need to be resolved, but hopefully you can understand our concern with the implications of your article. We would like to yell slander, libel, retraction, apology; but perhaps from the New York Times perspective, the word “treasonable” best applies. Treasonable? Yes, treasonable, since many of your critics say The Newspaper has lost its way, is past its prime, and the quality of journalism represented by your article certainly gives “aid and comfort” to your enemies!
Definitely not up to “the standard of the Times”, nor Pulitzer quality. You smeared us all.
Jim Blaine
President
State Employees' Credit Union
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