Two industry veterans say securitizing toxic corporate assets could push the cost of corporate stabilization above the current $9.5 billion tab.
"In order to attract investors, NCUA will either have to provide a guarantee to make up the difference for underperforming assets, or sell them at a deep discount, or a combination of the two," said Charlie Felker, managing director of regulatory affairs for First Empire Securities.
FDIC issued $1.8 billion in notes March 5 that were collateralized by $3.7 billion in toxic assets from seven seized banks. NCUA Chairman Debbie Matz has valued corporate legacy assets at $50 billion.
"This isn't a way out," Felker said. "Yes, it's a way to get the junk out of the corporates' trunks, but credit unions will still pony up ultimately."
D. Henry Blevins, managing director at investment bank Crews & Associates, said he thinks
NCUA won't package legacy assets into a single sale. Rather, corporates will package individual deals and sell them directly to investors, as part of an Event of Default sale, which he said happens weekly in today's market.
"What is important to understand during these EOD sales is that the buyer must pay a low enough price to offset the risk he is taking on," he said.