ATLANTIC CITY, N.J. -- While it's still in the works, the plan for potentially recapitalizing corporate credit unions will likely have a built-in fail-safe for credit unions wary of recapitalization.
In response to a question from attendees at the N.J. CU League's Annual Convention, Corporate One CEO Lee Butke revealed that the corporates would be meeting with the NCUA in the middle of October to work out some of the details of how to recapitalize the corporates if the membership decides that is what it wants. For those fearing a second failure, he explained that an "escrow-style" account would likely be the way recapitalization would work.
Mid-Atlantic Corporate CEO Jay Murray said that the corporates would have to be able to demonstrate viability as well before they could convert the capital.
Just over a week after the NCUA unleashed its corporate Black Friday, these two corporate executives took the stage along with CUNA CEO Bill Cheney to answer questions from NJCUL President/CEO Paul Gentile and the audience on the future of the corporate system. Several ideas were bounced around regarding whether the corporates should be collaborating more or even whittling down to one as was the original idea. Others discussed the use of alternatives.
But Murray didn't let credit unions off the hook that easy while he was on stage. He pointed out that the natural person credit unions owned the system. "It is what it is; it's what it's been led to," he said. Murray stated that the system moved too far away from the cooperative principles, and the industry needs to "hit the reset button."
Butke pointed out that the corporates already collaborate in many ways and will continue to do so. He noted that Corporate One and several others are using Mid-Atlantic's bill pay program while all the corporates are also using Corporate One's brokerage program.
One thing was very clear to all: the credit unions are in control of the eventual resolution. A healthy resolution or consolidation "is only going to work if that's what the members of that corporate want it to be," Murray said. He commented that the corporates got away from their cooperative roots and that returning to them is what will bring the industry back together.
Butke and Murray said the NCUA's revised corporate regulation is definitely workable and the corporates are working together. However, the natural person credit unions will have to allow for a highly orchestrated wind-down over the next two years.
He likened it to Jenga. "If everybody pulls their block out, we're all going to fall," Murray said. If member credit unions begin an exodus before the NCUA's two-year plan can be executed the entire interdependent stack will topple, leading to greater losses for credit unions.
"It is critical that the bonds sale go off and go off well," Murray said.
Murray said at one point he was receiving daily liquidity reports from U.S. Central, and the industry doesn't want to return to that situation. If the corporates don't have the liquidity, then the natural person credit unions might not have money to pay out to their members, which could cause runs.
Cheney said Terry West, CEO of Vystar Credit Union, is heading up CUNA's task force working on the best next steps.