Corporate Assessments Probably Over: NCUA
Federally insured credit unions could potentially receive a rebate on corporate assessments, according to a Wednesday release from the NCUA. However, the final tally won't come until 2021, the regulator cautioned.
The net remaining stabilization fund projected assessment range now runs from negative $1.9 billion to negative $400 million, compared to the negative $200 million to $1.6 billion projection from the second quarter of 2013, the NCUA said. As long as both ends of the range remain negative, there will likely be no need for future assessments, the agency added.
The net proceeds from the $1.4 billion JPMorgan Chase settlement in November 2013 and the continued improvement in the performance of the legacy assets underlying the NCUA Guaranteed Notes (NGN) program during the third quarter of 2013 caused the decline in the assessment range.
“Our legal team is diligently pursuing our claims against the Wall Street securities firms who sold faulty securities to five corporate credit unions, causing them to fail and triggering a crisis in the system,” NCUA Board Chairman Debbie Matz said. “That hard work is paying off, and we will continue our efforts to hold accountable those who helped precipitate the crisis.”
NCUA Public Affairs Specialist John Fairbanks would not comment when asked for the net amount of the JPMorgan Chase settlement that was applied to the corporate stabilization fund. The NCUA entered into a contingency agreement with outside attorneys when it initially filed lawsuits against Wall Street investment firms to recover losses from corporate investments.
In October 2012, Rep. Darrel Issa (R-Calif.) challenged the contingency agreement, which he said violated an executive order prohibiting federal agencies from the agreements.
In an Oct. 16 letter to then-NCUA Inspector General William DeSarno, the California lawmaker was critical of the NCUA’s contingency arrangements with two law firms, the Washington-based Kellogg Huber and the Chicago-based Korein Tillery. The agreements stated the firms would collect 25% of all claims recovered from the bank plaintiffs, Issa said.
At the time, law firms had received more than $40 million from $170 million in settlements with Citigroup, Deutsche Bank Securities and HSBC. The remaining $127.25 million was applied to the corporate stabilization fund.
In February 2013, DeSarno told Issa it supported the NCUA’s position that the agency was acting as conservator when it pursued the damages in court, and was no longer functioning as a government agency.
DeSarno, who retired from the NCUA June 1, 2013, also said he thought the 25% contingency agreement was reasonable.
If the 25% contingency fee arrangement still holds, lawfirms would receive as much as $350 million from the JPMorgan settlement.
Following the NCUA’s $1 billion repayment to Treasury in December 2013, the agency must still repay $2.9 billion in outstanding Treasury borrowings before any remaining Stabilization Fund distributions can be legally made to credit unions. As a result, the NCUA said, any potential repayment to credit unions is not likely to occur prior to expiration of the Stabilization Fund in 2021.
The assessment range is generated using legacy asset cash flows projected by the international asset management firm BlackRock. While NCUA expects to receive these legacy asset cash flows over time, they have not been realized, so future Stabilization Fund ranges could also vary significantly from current projections.