With NCUA's latest maneuver to conserve U.S. Central and WesCorp, credit unions learned that all of the member capital and paid-in capital at WesCorp was beyond decimated. NCUA's loss figure exceeded the WesCorp auditor's finding seven-fold. Credit unions are being assessed by the NCUSIF over 100 basis points, which many say is only the beginning and cutting further into member offerings.
Examine the interests at play in the conservatorships. Naturally, WesCorp would like to reflect the best numbers possible-pushing the envelope without necessarily ripping it open. NCUA is there to protect the share insurance fund, so its inclination is to be as conservative as possible. In addition, the agency board has political interests to consider, particularly as a seat is opening up and the sitting chairman is a Republican during a Democratic administration.
And then there's PIMCO, which provided NCUA's audit. Granted, PIMCO is one of the big boys in the field. However, at the same time, PIMCO applied for TARP money back in October to buy bad assets. Just last week, one of PIMCO's top executives was applauding Treasury Secretary Geithner's plan for a public-private solution for the economic crisis and said he was eager to participate. Of course one must take the size of the corporates' bad assets into account in comparison to all the others, not to mention that at a firm as large as PIMCO, the right hand doesn't necessarily know what the left hand is doing.
Couple that with the new U.S. Central CEO, appointed by the NCUA which is also occupying the board seats, telling a local paper that he's looking at the possibility of setting up a bad bank to dump the bad assets in. Sounds like the agency has a pretty good idea of what's going to happen next, despite what the industry has to say.
I cannot believe the agency would venture that way again after the CapCorp debacle. The industry could be looking at a sell off of these so-called bad assets, most of which I understand are still paying regularly, at fire-sale prices. And, another hit from the regulator to their bottom lines.
During NCUA's Webinar last week, the agency posted a slide that read: Maintaining stable funding from CUs is paramount to avoid risk of loss from selling securities at current adverse market prices. So basically, you're screwed whether you continue corporate participation or not. I also think the NCUA board and top execs are making a huge mistake constantly reiterating that they now have "honest" numbers. If they're trying to instill confidence in the system, this is not the way to do it.
Some have suggested that this will push credit unions to convert to a bank-at least the premium would be tax-deductible.
Attorneys at the Washington Credit Union League have sent a letter to NCUA's lawyers suggesting remedies for the apparent conflict of interest regarding PIMCO's involvement. Well-known Callahan President Chip Filson has come out suggesting that the solution to what he termed an unnecessary government takeover of the corporates would be for interested parties to take the NCUA to court.
Not a terrible idea, but who's got the resources right now to take on such a feat? By the time you're reading this, the decision of whether or not to sue will likely already have been made as the complaint must be filed within 10 days.
Another issue that struck me was that the NCUA has resident examiners at these corporates. When the NCUA announced it was bringing in PIMCO, it was for expert analysis. Isn't that NCUA's entire raison d'?tre-to ensure (and insure) the safety and soundness of these institutions? If WesCorp's numbers truly were off by 700%, shouldn't NCUA have noticed before now?
Not that WesCorp is blameless. It was the one, among others including the trade groups, that pushed for expanded investment authorities for the corporates a handful of years ago. And why were they lobbying for that? Because their members, the credit unions, demanded better returns and pricing on services.
Even with expanded authorities, the corporates were only permitted to go so low in their investments and primarily stuck to AAA paper. So does the blame lie with the ratings agencies that gave these mortgage-backed securities AAA ratings that subsequently plummeted? Or is it the fact the ratings agencies have insufficient government oversight and are funded by the very companies they are expected to objectively rate? Or was it the lack of oversight of the mortgage brokers who made the underlying loans with nothing to lose and so much to gain?
But how much does government oversight matter when our guardians like Senate Banking Committee Chairman Chris Dodd gets perks from Countrywide and House Financial Services Committee Chairman Barney Frank receives significant political funding from Fannie Mae? And who keeps voting these people back into office?
My point here is that the problem is systemic. And, unfortunately, it's up to you-the individual-to turn things around. Equally unfortunate is that there is no quick fix, no silver bullet, not even much of a silver lining except that it's not impossible to change.
Instead of ranting and raving in "unknown user" comments to Chip Filson's column or anonymous blogs, you should have been stating all this to NCUA. CUNA's GAC sessions would have been an ideal time to put not only a name but a face with the frustration. Whatever your stance, the time for timidity is over.
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