The $1.5 billion Eastern Corporate Federal Credit Union, the $1.75 billion First Carolina Corporate Credit Union, the $238 million Midwest Corporate Credit Union and the $100 million Iowa Corporate Central Credit Union were all missing from the NCUA's March 2 participants list.
NCUA spokesman John McKechnie acknowledged that the NCUA's list was incomplete but said he had no comment on the corporates that didn't renew.
The original program was executed on Jan. 28, and guaranteed corporate deposits through Feb. 28. In mid-February, the NCUA offered to extend the guarantee through Dec. 31, 2010 but required corporates to sign a new agreement by March 1.
Doug Wolf, president/CEO of Midwest Corporate, said his board weighed the pros and cons of the extension over two meetings.
"When we started discussing the agreement, we realized it didn't really protect members' capital," Wolf said. "We're a healthy corporate, and don't have any issues that require a regulatory solution so long as U.S. Central is taken care of, so we want to keep all of our options available in terms of oversight and management."
Wolf declined to discuss specifics or provide a copy of what NCUA was asking for, saying the NCUA placed strict confidentiality restrictions on corporates. EasCorp, First Carolina and Iowa Corporate did not return calls requesting comment.
However, copies of the NCUA's letter of understanding and agreement were leaked and posted on the Internet by a couple of industry bloggers. The agreement states that "the NCUA Board has determined that publication of this LUA would be contrary to the public interest...Corporate agrees with and consents to the decision not to publish this LUA."
The agreement requires participating corporates to submit a capital restoration plan to the NCUA within 30 days. Corporates also agree to refrain from new CUSO business and pay no bonus dividends to members.
A major sticking point for two of the dissenting corporates was the inability of the agreement to protect member capital. The agreement states that the NCUSIF obligation to pay guaranteed shares "arises only upon the liquidation" of the corporate.
"It would be highly unlikely that any guarantee would actually be paid," said Wolf in a Feb. 27 letter to members. He expanded upon that statement, saying that as a small institution, in the event Midwest Corporate required regulatory action, it would probably be merged before it was liquidated.
Though EasCorp is larger, CEO Jane Melchionda wrote similarly in a Feb. 27 letter to members that the risk to member capital was "the most determinative" in the board's decision.
"While certain of EasCorp's member contributed accounts at U.S. Central Federal Credit Union are at risk, the board did not want to expose EasCorp's capital to systemic risk attributable to problems at other corporate credit unions," Melchionda wrote.
Wolf added that his corporate's balance sheet has hardly any risk, almost all in the form of term investments at U.S. Central and other corporates. Those two corporates both signed the agreement, he said, so Midwest Corporate's exposure is covered.
The agreement also intrudes upon human resources departments, requiring that participating corporates pay no bonuses or award any noncontractually required compensation or benefits to senior executives. Senior executive new hires will require approval in writing from the NCUA's Office of Corporate Credit Unions.
Despite declining the NCUA's safety net, both Midwest and EasCorp have made some changes to their operational strategies, with EasCorp's changes nearly mirroring some of the agreement's requirements.
According to Melchionda's letter to members, EasCorp has placed a self-imposed moratorium on bonus dividends to members and bonuses to senior executives, new CUSO loans and investments, and new activity related to expanded investment authorities. EasCorp is also developing a capital plan that reflects "the new business environment and contingencies."
Wolf said his board decided to limit future investments to U.S. Central, other corporates that signed the guarantee, or federally insured institutions. Midwest Corporate also stepped up its due diligence reporting, now reporting financial statements monthly rather than quarterly, and adding a due diligence session to its annual economics conference next month.
Additionally, Wolf posted an extensive "fact sheet" on his Web site for his members.
"It's only been three days but so far we haven't had any direct fallout, though a couple of members expressed a little concern," he said. "However, we're finding that as we talk to members they are generally understanding and supportive of the decision we made. Their main concern was how to explain to their own boards what we did and why we did it."