Annaloro: CUs Support PIMCO Inquiry
The Washington State Credit Union League showed no signs last week of backing down in its verbal assault against PIMCO, the California consulting firm, for an alleged conflict of interest in connection with the NCUA's takeover of U.S. Central FCU and WesCorp FCU.
"We're still hearing from credit unions, and I'd say our criticism has been well- received from across the industry," said John Annaloro, the president/CEO of the trade group. The WCUL fired off a letter two weeks ago to NCUA asking the Newport Beach, Calif. firm to return fees it received for its U.S. Central/WesCorp evaluation and be barred from future agency assignments.
The Washington league argues PIMCO's apparent intent is to eventually bid on the so-called toxic assets in U.S. Central and WesCorp's portfolios based on published comments by a top PIMCO executive. The league alleged the firm has a conflict of interest after serving as auditor for the NCUA.
"I think the leadership of NCUA has taken to heart the responses it got on this issue and is weighing the moral hazard," Annaloro said, arguing the league's raising of the issue has shed new light on transparency concerns. It has also contributed to the NCUA's process of finding feasible solutions on corporate stabilization.
The league's chief attorney, Stacy Augustine, who also is senior vice president, referred to industry talk about a possible suit against NCUA over the matter might be forthcoming "but there could be problems with standing," she said last week. The prospect of a court suit or other "legal remedies" had been looked at by CUNA but apparently has been dropped for the time being.
Since releasing copies of its NCUA letter, league officials said it has received scores of e-mails and phone calls from CUs, mostly in Washington State, that support the league's conflict of interest view that PIMCO "as an independent verifier of the potential losses within the corporate credit union system has gained insider knowledge and has now expressed an interest in the 'potential double-digit returns' on investments in the 'bad bank' assets pool."
The NCUA has dismissed the PIMCO criticism as uninformed, maintaining the firm's report was just one element of the decision making on U.S. Central and WesCorp.
Annaloro said he has not received any reply from PIMCO to the league's letter or to a press statement on the topic. Calls by Credit Union Times to PIMCO's offices in Newport Beach and New York also were not returned.
The $4 billion Mid-Atlantic Corporate FCU in Middletown, Pa., citing the impairment of its own capital in U.S. Central, warned that the unintended consequence of the conservatorships "could jeopardize consumer confidence in all credit unions."
As it also reassured its East Coast members that it can weather the impact of the impairment, it said also it is witnessing a "higher than normal" rise in first-quarter deposits, up from $2.8 billion at the end of 2008.
As a result of the latest NCUA actions, Mid-Atlantic members, according to President/CEO Jay Murray, "have had another level of financial impact thrust upon them because Mid-Atlantic now has an impairment of our capital with U.S. Central, which is likely to roll down to an impairment of our members' capital."
It is critical, he said, "that alternative solutions are found to ease the financial burden on our members from the insurance fund assessment and impairments resulting from the U.S. Central conservatorship."