Determining the value of securities involves so much subjectivity, said NAFCU President/CEO Fred Becker, the NCUA should be more forthcoming about the terms of its contract with the Newport Beach, Calif.-based Pacific Investment Management Co., which it hired to determine the value of corporate credit union investments.
Not only are credit unions footing the bill for hiring PIMCO, but the industry will also ultimately pay for the losses declared by PIMCO. Because of this, credit unions should not only know the extent of these losses, but also the methods used to arrive at those figures, said Becker.
"There's absolutely no reason why credit unions, seeing as they're paying the bill, shouldn't be allowed to see the aggregate figure, know exactly what PIMCO was asked to do, what constraints were put upon them…those procedures are all very important," he said.
However, NCUA spokesman John McKechnie said the agency will not disclose any information about PIMCO methodology because "this is proprietary and nonpublic."
Becker said he spoke with a member who liquidated investments back in the savings and loan days. He said the member told him that it's not number crunching but sales tactics used to liquidate investments that result in the least amount of losses.
"At one time, this person was told by the agency he'd lose $20 million in liquidating a $250 million portfolio," Becker said. "But thanks to his sales tactics and a lot of luck, he only lost $3 million. That really demonstrates the subjectivity and management style involved."
Becker said NAFCU members don't have a problem with the fact that PIMCO, which counts former Federal Reserve Chairman Alan Greenspan among its paid advisers, was selected to perform the portfolio reviews. However, transparency is a big issue among members.
NCUA Chairman Michael Fryzel previously declined revealing the terms of the PIMCO deal, telling the Credit Union Times that it was confidential. Becker said he told the NCUA a couple of weeks ago that he wanted more details.
"This issue has been bubbling for a while," Becker said. "My members are very interested in this and requested help. I think the agency owes transparency to its stakeholders on this issue, and frankly, I'm puzzled why they're not providing transparency."
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