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Corporate Credit Union Meltdown
Old 02-06-2009, 11:25 AM   #1
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Corporate Credit Union Meltdown

Some pretty interesting goings on in credit union land these days. NCUA has proposed a $5 Billion bailout of Corporate Credit Unions - these are institutions that have regular credit unions as customers. The corporates have enormous "unrealized" losses on their books from, what else, mortgage backed securities.

NCUA is trying to get TARP money but many credit unions oppose this as they are proud of stating how credit unions have never cost the taxpayers a dime. Others are worried accepting Govt. bailout money will result in the taxation of credit unions.

This bailout will come at a huge cost to credit unions. It's estimated to wipe out profits for 2009 and reduce the capital position of many to the point of requiring regulatory action.

Here's an article from Credit Union Journal about this. I included the entire article as I believe a subscription is needed:





Finger-Pointing Erupts Over Corporate Bailout

Credit Union Journal | Friday, February 6, 2009
WASHINGTON – Recriminations were flying yesterday over responsibility for the bailout of U.S. Central FCU and the corporate network, with executives calling for the ouster of key corporate management, the elimination of the corporate system, and even the removal of the NCUA Board for its role in the unfolding crisis.
"An NCUA examiner was on-site at U.S. Central for a year, so how did NCUA not know about what was going on there," said Curt Prins, a long-time director of Congressional FCU, which manages the money for hundreds of members of Congress, of the $1.2 billion loss U.S. Central reported for its fourth quarter.
Prins, well-known on Capitol Hill, called on lawmakers to investigate the corporate rescue and to remove the NCUA Board. "They’re damaged goods," he said. "Eight thousand credit unions expected NCUA to protect them, and they failed. It’s like a corrupt police department."
In a letter to the NCUA Board yesterday, Prins, a former staffer for the House Banking Committee, called on the members to resign. "In fairness to all credit unions and their millions of members, the entire board of NCUA should resign and give President Obama an opportunity to appoint a board that will actually protect the safety and soundness of the system," said Prins’ letter.
Congressional FCU is expected to take a $3.3 million hit as its share of the $5 billion corporate rescue plan, according to Prins.
Elsewhere, the chief executives at two of the nation’s largest credit union, Navy FCU and Pentagon FCU, were calling for the elimination of the corporate credit union network, which is currently holding as much as $18 billion of unrealized losses.
"This is an impossible contingency and is not something we can accept," said Frank Pollack, president of Pentagon FCU, who remembers his credit union losing $1.5 million in the 1995 failure of Capital Corporate FCU, known as CapCorp.
Pollack, whose $13 billion credit union’s share of the NCUA premium is an estimated $71 million, called for the dismissal of corporate executives as a condition of any NCUA assistance and the eventual elimination of the corporate system. "It is essential that the corporates are wound down, with the exception of their role in facilitating the payments system," Pollack told The Credit Union Journal yesterday.
Cutler Dawson, president of $36 billion Navy FCU, agreed with Pollack and called for NCUA to "take immediate control" of the corporates.
The CEO of the nation’s largest credit union lamented Navy Fed’s estimated $280 million share of the corporate rescue and its impact on his 3.1 million members. "We believe strongly that our resources are for our credit union, not a sump for NCUA to dip into to solve whatever problems they might see," said Dawson. "Our responsibility and credit union executives’ responsibility and all directors’ responsibility is to the members of my credit union and that trumps any other issue."
The two credit union execs said they are working with the CEOs of several other large credit unions to explore alternatives to NCUA’s $5 billion corporate rescue plan.
Separately, several corporate credit unions were calling on U.S. Central FCU to fire senior managers they believe are responsible for U.S. Central’s huge $1.2 billion fourth quarter and $1.1 billion fiscal year loss. Jane Melchionda, president of EasCorp FCU, sent a letter to U.S. Central threatening to cease doing business with the corporates’ corporate until individuals responsible for U.S. Central’s losses were dismissed
Late yesterday U.S. Central responded by firing David Dickens, the long-time director of asset/liability management who helped build up the corporate’s $33 billion investment portfolio that has $10 billion of unrealized losses.
Jim Blaine, president of $17 billion North Carolina State Employees CU, estimates his credit union’s share of the NCUA premium at $114 million. He called on NCUA to provide all documents being used to assess the financial condition of the corporates so that the credit union community as a whole can help develop an alternative to the $5 billion corporate rescue.
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Old 02-06-2009, 12:37 PM   #2
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I just thought I'd add my thoughts on how the problem with corporate credit unions might impact us. I know many of you deal with credit unions, particularly Pentagon Federal. The cost of this bail out will cause a big hit on capital and earnings. Now might be a good time to get that loan or CD you've been thinking about as I'm sure this will impact rates. Also, while PenFed and Navy can handle the assessment NCUA proposed to pay for this bail out, other credit unions may end up in pretty bad shape. It's a good time to make sure all your credit union accounts are within insured limits.
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Old 02-06-2009, 12:43 PM   #3
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My biggest fear is that this would give the banks the leverage they've long wanted to kill credit unions. I've been a member of a California credit union for 20 years now, and I've always been very happy with their service as well as their savings and loan rates.
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Old 02-06-2009, 01:01 PM   #4
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GREAT! Credit unions suck now. Looks like my matress is the only place I can trust
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Old 02-06-2009, 01:07 PM   #5
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GREAT! Credit unions suck now. Looks like my matress is the only place I can trust
Actually, a lot of individual credit unions are very strong. But their backstops may suck.
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Old 02-06-2009, 01:22 PM   #6
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whats a corporate credit union? A credit union of credit unions?
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Old 02-06-2009, 01:22 PM   #7
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The problem I am having with all the banking bankruptcies (possibly soon to be Credit union Bankruptcies) is, there is really no way to really be sure your Credit Union is adequately capitalized. I did some digging to find out if my credit union was a safe place to keep my mula, and couldn't find squat. My credit union is BECU. Can anybody point me in the direction to find it if the credit union is OK. I need hard data
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Old 02-06-2009, 01:26 PM   #8
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Originally Posted by DAYDREAMER View Post
The problem I am having with all the banking bankruptcies (possibly soon to be Credit union Bankruptcies) is, there is really no way to really be sure your Credit Union is adequately capitalized. I did some digging to find out if my credit union was a safe place to keep my mula, and couldn't find squat. My credit union is BECU. Can anybody point me in the direction to find it if the credit union is OK. I need hard data
One resource you can try is this one on Bankrate.com. It's not foolproof as I think some reasonably well-rated banks in here have gone under, but it's not a bad start:

Bankrate.com -- Safe & Sound (tm): Bankrate's free rating system for banks, thrifts, credit unions
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Old 02-06-2009, 01:36 PM   #9
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Spend it all, then get on the "bail-out" roster.
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Old 02-06-2009, 01:58 PM   #10
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Quote:
Originally Posted by DAYDREAMER View Post
The problem I am having with all the banking bankruptcies (possibly soon to be Credit union Bankruptcies) is, there is really no way to really be sure your Credit Union is adequately capitalized. I did some digging to find out if my credit union was a safe place to keep my mula, and couldn't find squat. My credit union is BECU. Can anybody point me in the direction to find it if the credit union is OK. I need hard data
I just looked them up on the NCUA website and while their earnings and capital have gone down, they look to be in pretty good overall shape. Even so, it's always wise to make sure you are within insured limits. It took me awhile to find them because they are listed under their old name of Boeing Employees Credit Union.

Here's how you can view their financial information:

go to www.ncua.gov
click on "credit union data" on the left hand side of your screen
click on "find a credit union"
enter 62604 and click "find" (this is their charter number)
click on "Financial Performance Report"
select "I want to view a 2 page FPR summary online" and click "OK"
From here, you can view their financial summary and ratio analysis.
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Old 02-06-2009, 02:23 PM   #11
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whats a corporate credit union? A credit union of credit unions?
Pretty much. Corporates provide check clearing, investments, lines of credit and other services for regular credit unions.
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Old 02-06-2009, 03:10 PM   #12
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Which is why when you call the toll free numbers for a institution you know is in the Washington DC suburbs you could be talking to someone in Omaha, Nebraska. I almost always ask where the person I am talking to is physically located and am surprised if I get someone in the place I think they might be. New World Order?
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Old 02-06-2009, 06:01 PM   #13
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Quote:
Originally Posted by Purron View Post
I just looked them up on the NCUA website and while their earnings and capital have gone down, they look to be in pretty good overall shape. Even so, it's always wise to make sure you are within insured limits. It took me awhile to find them because they are listed under their old name of Boeing Employees Credit Union.

Here's how you can view their financial information:

go to www.ncua.gov
click on "credit union data" on the left hand side of your screen
click on "find a credit union"
enter 62604 and click "find" (this is their charter number)
click on "Financial Performance Report"
select "I want to view a 2 page FPR summary online" and click "OK"
From here, you can view their financial summary and ratio analysis.
Looks like Pen Fed's share of the damages amount to about 6 months of earnings. Painful, but not cause for concern.
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Old 02-06-2009, 06:34 PM   #14
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If you have been following their rates they have steeply dropped their CD rates, while raising their mortgage rates in recent weeks. Most likely in an attempt to increase their carry trade.

I was able to get a $250K in a 5 year CD at a rate of 6.25% right after the FDIC raised the limit. Only 51 more months of worrying about it until it matures.
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Old 02-06-2009, 07:00 PM   #15
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Looks like Pen Fed's share of the damages amount to about 6 months of earnings. Painful, but not cause for concern.
Agreed. Pen Fed is in fine shape. However, members of Pen Fed will eventually pay for this through less favorable rates and lower levels of service. The bigger concern is those credit unions already skating on thin ice. If a number of them fail, it may impact confidence in the entire credit union system.
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Old 02-06-2009, 07:28 PM   #16
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Agreed. Pen Fed is in fine shape. However, members of Pen Fed will eventually pay for this through less favorable rates and lower levels of service. The bigger concern is those credit unions already skating on thin ice. If a number of them fail, it may impact confidence in the entire credit union system.
My read is that Pen Fed was overcapitalized to begin with, so more than likely they can eat this without missing a beat. As for the rest, enter the bailout...
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Old 02-06-2009, 09:44 PM   #17
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I know PenFed is a safe place to keep you money. And maybe The Fed Pen would be a place to keep Bankers safely away from your money.
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Old 02-07-2009, 06:02 AM   #18
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Here is a listing of most recent closings etc., of financial institutions here and in England (Credit Union listing is towards the end of the list): List of acquired or bankrupt banks in the late 2000s financial crisis - Wikipedia, the free encyclopedia
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Old 02-07-2009, 10:39 AM   #19
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Agreed. Pen Fed is in fine shape. However, members of Pen Fed will eventually pay for this through less favorable rates and lower levels of service. The bigger concern is those credit unions already skating on thin ice. If a number of them fail, it may impact confidence in the entire credit union system.
I think merger activity in the CU world will increase in 2009.
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Old 02-07-2009, 10:49 AM   #20
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Thanks Ziggy29 and Puron for the info. BECU has been a great Credit Union to bank with and never had any complaints. I just don't want to wake up someday and relize (like the MADOFF Victoms) that my money is gone. Since the NCUA changed the insurance limits to 250k per person, we are under the insurance limits. We'll have to take some action to move money around if they move the insurance back to 100k at the start of next year.
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