Corporate Credit Union Fallout: Gimme Shelter
This isn't a rehashing of the corporate credit unions' problems or legacy assets or placing blame. We'll learn about the agency's plans for the legacy assets soon enough (though it has been some time coming). This is about the discovery of next steps.
CUNA is starting a Next Steps working group to help credit unions decipher the alternatives to the services corporates offer. This is an appropriate need for a trade association to fulfill. However, I can't help but think, if credit unions were performing due diligence on third-party providers as required by the NCUA, shouldn't part of that be what alternatives there are or exit strategies?
The alternatives to many of the services should already be apparent. Some credit unions have evaluated their options because they've been using alternatives since before the meltdown.
Credit unions have taken for granted that just because an entity is credit union-owned, it's a good actor. Certainly there are instances of well-disguised fraud, as in the case of CU National Mortgage, where deliberate moves were made to cover up obvious malfeasance. While the courts are sorting out whether the situations at U.S. Central or WesCorp could be considered fraud or incompetence, the fact an entity is a CUSO or a corporate should not grant them a free pass. Maybe corporates were the best option at the time, but without knowing and studying the alternatives, how can a credit union really know? If due diligence doesn't become a primary concern for credit unions, the industry is heading for another Centrix.
Last week, the National Credit Union Foundation announced that it had come to terms with corporate credit union fallout (see cutimes.com). The foundation said that it made the decision to diversify its funding sources when it saw a 50% drop in revenue for various reasons. Despite healthy penalties, several large withdrawals were made and some credit unions pulled their funds specifically because they didn't want to invest in corporates. The NCUF quite reasonably made the business decision to shoot itself in the foot by blindly staying exclusively with the corporates simply because it's in the system.
The foundation selected the NCB (formerly National Cooperative Bank) as an alternative for its Community Investment Fund program with the corporate credit unions in part because the NCB is still a cooperative entity. According to the news release, and obviously there are other considerations, but the NCB CIF keeps the investments more liquid than the corporate CIF program. The foundation should be applauded for reacting to the situation it was dealt by the corporate crisis, but according to the release the foundation didn't know prior to the summer of 2009 "if a CIF program with NCB was even possible." Credit unions and related entities really need to study Plan B before it's needed and realize that sometimes the best options will be outside the credit union movement. The same goes for succession planning, a pet topic of mine but not the subject of this column.
Another chink of the corporate system is the lack of audited financials for the NCUA. The agency's annual report typically comes out in the spring of the following year, yet the NCUA 2008 annual report is conspicuous in its absence. The NCUA has said accounting standards changes as they apply to regulators is requiring more time then normal to work through. Word from sources in the know is that the agency cannot get a clean audit. D?j? vu? This was the very same scenario the NCUA and industry complained about when U.S. Central and WesCorp were late in delivering their figures. The agency and the Obama administration have been preaching transparency, so I think the agency needs to step up to the plate and at least to come out with an explanation why the NCUA's financials haven't been reported, as required by law.
The agency's numbers are even more crucial now than possibly ever before. Not only do the White House and Congress have the right to know, the credit unions that fund the agency and insurance fund have the right to know the financial state of their regulator and their deposits. NCUA's annual report also may clue credit unions in to possible assessments since the best the agency is providing credit unions right now is somewhere between 15 and 40 basis points. However, note that I said the 2008 financials are not available; it's spring of 2010 so 2009 figures should be due out any time now.
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