Secret Assets Sale Repaid $10B in Treasury Loans
The revelation that NCUA sold $800 million worth of U.S. Central FCU and Western Corporate FCU securities in mid-September disclosed the tail end of a $10 billion covert effort to repay borrowings from the U.S. Treasury.
NCUA applied the $800 million and billions more in proceeds from previous sales of performing investments toward $10 billion in loans made to the two corporates in 2009 in an attempt to shore up liquidity. Without the loans, both WesCorp and U.S. Central would have been forced to sell the bonds while the market was low and write down billions in noncredit losses, said NCUA Deputy Executive Director Larry Fazio.
He said there was no point in holding the investments to maturity and paying for outstanding borrowings at the same time. Not only would the two corporates be paying unnecessary interest charges, but the well-performing investments are now trading so close to par they incurred miniscule, if any, losses upon sale related to so-called "unrealized losses."
NCUA has also been "unwinding" derivative positions on other U.S. Central and WesCorp investments in preparation for the securitization of legacy assets. Proceeds from those transactions are also providing positive cash flow for the two corporates, he said.