Lax management plus bad investments equaled a $141 million loss.
That in a nutshell is the conclusion of the NCUA Inspector General in its report on the failure of Plano, Texas-based Southwest Corporate.
That conserved corporate later merged with Georgia Corporate to create Catalyst.
As to why Southwest failed, the Inspector General minced no words. “We determined Southwest’s management and Board of Directors (management) did not implement appropriate risk management practices to adequately limit or control significant risks in its investment strategy.”
The Inspector General continued: “Management’s actions resulted in substantial exposure to privately-issued RMBS [residential mortgage backed securities], which resulted in significant concentration risk and left Southwest vulnerable to significant credit, market, and liquidity risks.”
In the process, the report throws darts at NCUA’s own staff. “We determined that NCUA Office of Corporate Credit Unions (OCCU) staff did not adequately and timely address the risks associated with Southwest’s direct concentration of and indirect exposure to privately issued RMBS.”
The Inspector General assured, however, that in light of this failure, NCUA has taken steps to improve its oversight and to create a “stronger regulatory framework.”