Blaine told Credit Union Times he's not frustrated the NCUA may settle on his 19-month old plan in the end, saying the issue was very complex and the agency was right to explore every possible option.

He said he still thinks the NCUA will utilize good corporate/bad corporate components in its plan but added that maintaining a bad corporate would require the funding of the remaining bad assets, which would no longer be supported by member deposits, loans and performing investments.

"If you're going to isolate those assets and let them sit, you need some isolated funding to match," Blaine said, adding that he thinks that part of the plan is unlikely.

According to the $20 billion WesCorp's July 2010 financial statements, $21 billion in member deposits currently offset $3.3 billion worth of other comprehensive losses, a $5 billion retained deficit and $6.5 billion in borrowed funds on the liabilities side of the balance sheet. WesCorp's securities available for sale were valued at $10.7 billion at July month-end.

First Empire Securities Managing Director of Regulatory Affairs Charlie Felker said he agreed that the NCUA is likely devising some sort of good corporate/bad corporate plan but said he thinks the agency also wants to achieve consolidation.

"One way to do that is to force some corporates into liquidation or force them to seek a merger if they can't meet capital requirements," he said. Chartering new corporates to replace the old won't achieve that directive, he said.

Blaine said legacy assets are on the books of other corporates besides the seized WesCorp and U.S. Central, and the NCUA may conserve or force mergers at those corporates to execute its plan. Corporates agreed to such regulatory action when they signed NCUA's share guarantee agreement and capital regulatory waiver, he said.

"Does NCUA have the ability to do a Corporate Black Friday? Absolutely, all the corporates signed off on it," he said. "The possibility is very real. It has even been reduced to writing."

Felker said he thinks the NCUA could proceed along the same lines as General Motors, which formed Motors Liquidation Company in June 2009 to retain toxic assets, and transferred performing assets to a newly chartered General Motors.

In the case of WesCorp, Felker said he thinks the NCUA will liquidate the San Dimas, Calif.-based corporate, form a new charter for good assets and transfer legacy assets to NCUA's assets management office.

However, Felker warned that "no matter what, the losses aren't going away, and will be eventually absorbed by the industry."

He added that the NCUA has consistently underestimated corporate losses and even increased the total corporate stabilization fund liabilities by another $500 million within the last 60 days. It doesn't matter if legacy assets are acquired by credit unions, transferred to the NCUA's asset management office or sold to the public, he said. Further losses are unavoidable and will eventually accrue to the stabilization fund.

Blaine said the NCUA tested toxic asset sales in October 2009 when WesCorp issued three-year notes worth $1.5 billion through underwriters JP Morgan and Bank of America. However, he criticized the regulator for not making the investments available to credit unions.

"Speaking for my credit union, we would be willing to purchase them if they were guaranteed and made financial sense," he said. "If federally insured credit unions are going to be billed if the investments lose value, then certainly credit unions at the very least ought to be given the chance to pursue any upside," he said.

Further, many credit unions are searching for reasonable, safe investments, and with an NCUA guarantee, some corporate toxic assets "may be ideal" for some credit unions, he said.

Felker said he has heard the NCUA may allow credit unions to purchase guaranteed corporate legacy assets, allowing credit unions the option to either invest in bad assets or recapitalize a new corporate.

However, he said he worries credit unions don't understand that a successful legacy assets plan will not eliminate current or future corporate assessments. Felker said he recently spoke at a credit union meeting in Texas and was surprised at the misconceptions credit unions expressed about legacy assets.

"I tell them it's like a shell game," he said. "You can scramble them around all you want, but those losses are still there under one of those shells."