Filson, CUs Disappointed With Lack of PIMCO Report Specifics
"I don't see a single fact or number in the entire presentation. It looks like an advertising brochure for PIMCO," said Chip Filson, president of Callahan & Associates. Filson voiced loud objections to the March 20 conservatorship of U.S. Central Federal Credit Union and Western Corporate Federal Credit Union, claiming the NCUA overestimated investment losses.
The former president of the Central Liquidity Facility and former director of the NCUA's Office of Examinations said he's disappointed to see the agency expect credit unions to provide full disclosure yet fail to live up to those same standards.
The four-page summary included three pages of background on mortgage-backed securities and the need to hire PIMCO, including many facts the agency has already shared with credit unions. The NCUA reiterated its doubts about the reporting accuracy, loss methodologies and overall investment portfolio management abilities at U.S. Central Federal Credit Union and Western Corporate Federal Credit Union. It said it chose PIMCO because of the Newport Beach, Calif.-based firm's reputation, independence and ability to provide output in a timely fashion and in a format useful to the NCUA.
The summary reported that NCUA believes the real estate market won't bottom out until 2010, with home values expected to decline another 15%. That's more than 50% of the 27% value decline experienced to date, and explains why the agency expects future losses on investments collateralized by residential mortgages.
However, Filson questioned how the NCUA could put a dollar value on mortgage-backed securities.
"There's no other organization in Washington, D.C., none among the most sophisticated regulatory agencies like the FDIC, Treasury or Federal Reserve, nor any private banking entities or educational institutions, that would claim they could come up with specific numbers you could put in income statement that would properly value these securities," Filson said. "That's what the whole debate in Washington has been about for the last nine months."
At best, Filson said, the NCUA's actions are based on "doomsday economics," and represents "very poor public policy for the credit union system."
Filson dismissed the NCUA's claims that U.S. Central and WesCorp financials should be kept private because the institutions have been placed into conservatorship.
"I don't know any basis for that at all. The government is a public institution, and there are no safety and soundness issues once you conserve," he said. "Credit unions are being asked to support this government enterprise, and the way you gain support is by showing your numbers, the basis for your request, and not just asserting that you should trust us."
For Kentucky-based credit union CEO Lew Whalen, the NCUA's lack of transparency isn't as much a matter of agency trust as it is corporate accountability.
Whalen said volunteers at his $28 million KUE Federal Credit Union say a lack of PIMCO specifics allows corporate managers to shirk responsibility.
"We have our loan allowance figures that we have to stand behind, so why won't they?" he said of U.S. Central and WesCorp managers and volunteers. "That's what upsets me, my board and my members. We had our stops in place, and even now, our financials are sound. Others didn't, but they aren't being held accountable."
Paula Nihoff, president/CEO of the $48 million HealthCare First Credit Union, said she's concerned about the lack of PIMCO report details because the loss figure is based on estimates, not incurred losses.
"They're just guessing things will go bad," she said. "Well, this is our livelihood, and it's worth more than just a guess."