Industry executives reacted last week with a combination of utter dismay, resignation, confusion plus a wary determination to get through the US Central-Wescorp crisis, while girding for the next surprise event from the NCUA.
"NCUA did the right thing in seizing oversight and taking out the management, but the only issue now comes down how we pay for it, how long we have to absorb the hit, and on that, NCUA needs to find a way to structure it over the same length as the banks," maintained Frank Pollack, president/CEO of the $13 billion Pentagon FCU.
If refunding NCUSIF is affordable, credit unions can handle it, forecast Pollack. He added that he agrees with CUNA's position of seeking aid from the Treasury Department and Congress but also stressed the need for an "accurate assessment of the credit losses in the portfolio" from the NCUA.
The Pentagon FCU CEO said he understands the reasoning for the agency's swift moves against U.S. Central and WesCorp, but now his Virginia-based CU, which had $5 million in WesCorp stock, "needs to know the real losses."
"Of course, we're not happy with what occurred, and I don't agree with the NCUA methodology, but I'm glad Fryzel took the decisive action to put a corral around the problem," maintained James Blaine president/CEO of the $16 billion State Employees' CU of Raleigh, N.C.
As for his CU, "we're more than willing to maintain federal deposit insurance for our members, and this is the cost we'll have to bear," said Blaine, adding that "the real issue is confidence and that is being restored."
But CUNA Chairman Kris Mecham of Salt Lake City said the NCUA should be careful about protecting the industry "at a time it is most vulnerable by providing more transparency and understanding" of its actions regarding the corporates. And it should not be ready to "cast us with the lot of all other financial institutions," said Mecham, CEO of the $490 million Deseret First CU.
"We all will be paying a very heavy fee in 2009, and now it will be challenging to say the least for credit unions to explain 2009 losses to their members, many who may not be understanding," said Mecham.
One encouraging step the NCUA has taken, according to Mecham, is in agreeing to "hold securities to maturity, and we hope they do that" before any precipitous liquidation.
The Utah CEO said the industry's weekend preparation for a possible deposit run turned out successful and really underscored "a continuation of our training that began in January." Trade groups, worried over a negative public and media fallout after the corporate takeovers, went into overdrive during the March 20-23 weekend to prepare CUs with talking points to counter public safety and soundness fears.
But the concerns for the most part proved unfounded as media attention was focused on AIG and bank takeovers and on that, "we had maybe six phone calls from members," said Mecham describing the reaction in Utah as "cursory." He noted, however, that while Utah is not in the same financial straits as its neighbors in Arizona and Nevada, "we do have some rather challenging housing problems impacting our loan portfolio" in St. George, near the Nevada border.
Like other CEOs, Christina Brown, president of the $802 million Gesa CU of Richland, Wash., said she was "shocked and disappointed at the extent of the apparent credit losses" at the two corporates, suggesting also she was concerned about the PIMCO methodology. She also suggested that there appears to be a "conflict of interest," since PIMCO could be "stepping up to buy the troubled assets."
The Washington Credit Union League backed up her sentiment with a letter to the NCUA expressing "serious reservations" concerning PIMCO's involvement in the purchase of toxic assets after having conducted the corporate audits for NCUA. The PIMCO audits reflected a 700% increase in losses from WesCorp's own audit completed by an external firm.
As auditors, PIMCO has gained insider knowledge, according to the Washington league. In a recent Reuters report, PIMCO Founder and Co-Chief Investment Officer Bill Gross touted Treasury's public-private effort and said it planned to participate.
New U.S. Central CEO Jim Nance told the Kansas City Star that he was considering establishing a bad bank for the troubled assets.
The Washington league has requested that the NCUA excuse PIMCO from future portfolio evaluations; require PIMCO to return NCUA fees paid for the evaluation; and re-evaluate U.S. Central and WesCorp conservatorship in light of potential conflict of interest.
Gesa, like many CUs in the Western states, had investment portfolios at WesCorp and use settlement and check clearing services at the San Dimas corporate. "We see no change as long as operations are stable and dependable," said Brown. "It would be too much of a disruption to our business plan and our members to change."
John Hirabayashi, president/CEO of the $1.1 billion Community First of Jacksonville, Fla., said though distressed at the loss to his own CU, "it did appear NCUA had thought clearly of its takeover actions."
"It does look like they had due diligence in place and their ducks in succession, and they seem to have some very high qualified people to run the operation."
Brett Martinez, CEO of $1.8 billion Redwood Credit Union in California, commented, "We need solutions. Credit unions cannot and should not bear the brunt of the NCUA's actions, and the current economic crisis. The industry is in need of leadership and government interaction to stabilize our federal insurance funds. We all need to get on the same page and demand better solutions from the NCUA and the federal government."
Redwood, a member of WesCorp, said the credit union had been helping its members get through the crisis, even though the CU was not at the root of their problems. "This recent action by the NCUA was the last thing we needed in a time when we are working so hard to dig out of the current crisis." Martinez explained that he disagreed with the NCUA's actions, but was not going to overreact. He added that he would like greater transparency from the agency.
In Utah, Michael Milovich, CEO of the $88 million Eastern Utah Community CU, said the diminished capital and tighter underwriting standards "will hurt us greatly and we simply can't afford more losses on the books." A $500,000 loss will be "a first for me in the 13 years I've been here," said Milovich. He added that one rule certainly needs to be fixed: "Corporates should not be allowed to invest in other corporates. That's a pretty bad idea."
--jrubenstein@cutimes.com
"NCUA did the right thing in seizing oversight and taking out the management, but the only issue now comes down how we pay for it, how long we have to absorb the hit, and on that, NCUA needs to find a way to structure it over the same length as the banks," maintained Frank Pollack, president/CEO of the $13 billion Pentagon FCU.
If refunding NCUSIF is affordable, credit unions can handle it, forecast Pollack. He added that he agrees with CUNA's position of seeking aid from the Treasury Department and Congress but also stressed the need for an "accurate assessment of the credit losses in the portfolio" from the NCUA.
The Pentagon FCU CEO said he understands the reasoning for the agency's swift moves against U.S. Central and WesCorp, but now his Virginia-based CU, which had $5 million in WesCorp stock, "needs to know the real losses."
"Of course, we're not happy with what occurred, and I don't agree with the NCUA methodology, but I'm glad Fryzel took the decisive action to put a corral around the problem," maintained James Blaine president/CEO of the $16 billion State Employees' CU of Raleigh, N.C.
As for his CU, "we're more than willing to maintain federal deposit insurance for our members, and this is the cost we'll have to bear," said Blaine, adding that "the real issue is confidence and that is being restored."
But CUNA Chairman Kris Mecham of Salt Lake City said the NCUA should be careful about protecting the industry "at a time it is most vulnerable by providing more transparency and understanding" of its actions regarding the corporates. And it should not be ready to "cast us with the lot of all other financial institutions," said Mecham, CEO of the $490 million Deseret First CU.
"We all will be paying a very heavy fee in 2009, and now it will be challenging to say the least for credit unions to explain 2009 losses to their members, many who may not be understanding," said Mecham.
One encouraging step the NCUA has taken, according to Mecham, is in agreeing to "hold securities to maturity, and we hope they do that" before any precipitous liquidation.
The Utah CEO said the industry's weekend preparation for a possible deposit run turned out successful and really underscored "a continuation of our training that began in January." Trade groups, worried over a negative public and media fallout after the corporate takeovers, went into overdrive during the March 20-23 weekend to prepare CUs with talking points to counter public safety and soundness fears.
But the concerns for the most part proved unfounded as media attention was focused on AIG and bank takeovers and on that, "we had maybe six phone calls from members," said Mecham describing the reaction in Utah as "cursory." He noted, however, that while Utah is not in the same financial straits as its neighbors in Arizona and Nevada, "we do have some rather challenging housing problems impacting our loan portfolio" in St. George, near the Nevada border.
Like other CEOs, Christina Brown, president of the $802 million Gesa CU of Richland, Wash., said she was "shocked and disappointed at the extent of the apparent credit losses" at the two corporates, suggesting also she was concerned about the PIMCO methodology. She also suggested that there appears to be a "conflict of interest," since PIMCO could be "stepping up to buy the troubled assets."
The Washington Credit Union League backed up her sentiment with a letter to the NCUA expressing "serious reservations" concerning PIMCO's involvement in the purchase of toxic assets after having conducted the corporate audits for NCUA. The PIMCO audits reflected a 700% increase in losses from WesCorp's own audit completed by an external firm.
As auditors, PIMCO has gained insider knowledge, according to the Washington league. In a recent Reuters report, PIMCO Founder and Co-Chief Investment Officer Bill Gross touted Treasury's public-private effort and said it planned to participate.
New U.S. Central CEO Jim Nance told the Kansas City Star that he was considering establishing a bad bank for the troubled assets.
The Washington league has requested that the NCUA excuse PIMCO from future portfolio evaluations; require PIMCO to return NCUA fees paid for the evaluation; and re-evaluate U.S. Central and WesCorp conservatorship in light of potential conflict of interest.
Gesa, like many CUs in the Western states, had investment portfolios at WesCorp and use settlement and check clearing services at the San Dimas corporate. "We see no change as long as operations are stable and dependable," said Brown. "It would be too much of a disruption to our business plan and our members to change."
John Hirabayashi, president/CEO of the $1.1 billion Community First of Jacksonville, Fla., said though distressed at the loss to his own CU, "it did appear NCUA had thought clearly of its takeover actions."
"It does look like they had due diligence in place and their ducks in succession, and they seem to have some very high qualified people to run the operation."
Brett Martinez, CEO of $1.8 billion Redwood Credit Union in California, commented, "We need solutions. Credit unions cannot and should not bear the brunt of the NCUA's actions, and the current economic crisis. The industry is in need of leadership and government interaction to stabilize our federal insurance funds. We all need to get on the same page and demand better solutions from the NCUA and the federal government."
Redwood, a member of WesCorp, said the credit union had been helping its members get through the crisis, even though the CU was not at the root of their problems. "This recent action by the NCUA was the last thing we needed in a time when we are working so hard to dig out of the current crisis." Martinez explained that he disagreed with the NCUA's actions, but was not going to overreact. He added that he would like greater transparency from the agency.
In Utah, Michael Milovich, CEO of the $88 million Eastern Utah Community CU, said the diminished capital and tighter underwriting standards "will hurt us greatly and we simply can't afford more losses on the books." A $500,000 loss will be "a first for me in the 13 years I've been here," said Milovich. He added that one rule certainly needs to be fixed: "Corporates should not be allowed to invest in other corporates. That's a pretty bad idea."
--jrubenstein@cutimes.com
