The seeds for this year's shakeup-or convulsion-of the nation's corporate system may have been sown in 2007 and 2008 with the subprime debacle. But the NCUA's Sept. 24 "Black Friday" seizure of three corporates was the climax of an exceedingly tough year.
The fallout, which opened the doors to a diverse array of CU providers, including the Federal Reserve, the Federal Home Loan Banks and CO-OP Financial Services, triggered a series of corporate mergers and forced many assessment-weary CUs to suffer more income loss as they also began realigning their processing and funding strategies.
"There could still be more economic pain but we, as one corporate, are still standing tall even as I think the dark clouds now appear to be lifting," observed Brad Miller, president/CEO of the $2.7 billion Southeast Corporate FCU of Tallahassee and the former head of the Association of Corporate Credit Unions.
Like other corporates that had to shrink their assets, he was referring to more capital raising, including Southeast's own $80 million package, lesser reliance on investment income and reduction of operating expense in order to adhere to new NCUA regulations.
Clearly, however, the NCUA's conservatorship of the three corporates, the $7.4 billion Members United Corporate FCU, the $9.5 billion Southwest Corporate FCU and the $1.2 billion Constitution Corporate FCU, was a shocker to the network.
In all three, CEOs and boards were dismissed, with the NCUA installing its own interim management that included a former president of the Federal Reserve Bank of Chicago, Charles W. Furbee, at Members United, and Dianne Addington, a retired CEO of Genisys CU in Michigan, at Southwest.
The three conserved corporates, combined with two others-the previously seized $30 billion U.S. Central FCU and the $19.3 billion Western Corporate FCU-owned all of the securities that made up the NCUA's $50 billion legacy assets plan.
Under the conservatorships and bridge formations, operations continued at all five corporates, but only short-term funding, up to six-months, was available to members.
NCUA officials in deciding on conservatorships and a purchase-assumption deal for Constitution, said they had conducted a comprehensive analysis of the entire corporate system with the assistance of the Federal Reserve, the Treasury and "lots of bonds experts." The analysis revealed the five corporates were not viable.
NCUA executives also had said that the five shared four characteristics: book capital close to or less than zero; NEV ratios less than negative 9%; potential for further impairments of capital; and no prospects to become adequately capitalized without NCUA intervention or assistance.
Four of the five seized corporates received the new bridge charters, allowing them to operate for 24 months, giving members time to decide upon processing service providers.
Constitution of Wallingford, Conn., was split up in November, with the conserved Members United approved by the NCUA to take over its operations with some CU and corporate executives raising eyebrows at the prospect of a conserved corporate taking over another.
Meanwhile, as rumors circulated about future mergers among the 27 corporates, the $2.5 billion Georgia Corporate FCU of Duluth acknowledged it was working with a 140-member advisory council of conserved Southwest Corporate in hopes of merging the Plano, Texas, entity by next summer.
The advisory council, made up of CEOs from eight states, on Nov. 30 selected Georgia Corporate as the designated merger partner for Southwest in a deal expected to give CUs access to a greater volume of competitive services. The NCUA, however, said it must approve any Georgia-Southwest merger, noting that no application has been received and no action has been taken.