NCUA Media Release

Corporate Credit Union Update

 

November 2, 2009 Alexandria, Va. – Normal operations continue without interruption at U.S. Central Federal Credit Union (U.S. Central) and Western Corporate Federal Credit Union (WesCorp). With continued financial assistance from NCUA, both WesCorp and U.S. Central have been effective in managing the seasonal liquidity pressures that occur during this time of the year.

Liquidity Update

 Liquidity remains a vital concern under the Corporate Stabilization Program. Liquidating the distressed residential and commercial mortgage backed securities would result in higher costs to the NCUSIF and federally insured credit unions than holding them until maturity. Retaining liquidity in the corporate credit unions precludes the need to sell the securities. NCUA has directed examiners not to take exception to investments in corporate credit unions that are guaranteed under the Temporary Corporate Credit Union Share Guarantee Program (TCCUSGP).

Historically, the summer and fall months exhibit net outflows throughout the corporate system. This past year, the average share balances have remained relatively flat, removing some measure of liquidity pressures. This is indicative that the TCCUSGP has been successful in restoring confidence in the corporate credit union system.

In January, February, and March 2010, funds provided to WesCorp and U.S. Central under the Credit Union System Investment Program (CUSIP) will mature. In anticipation of funding these outflows, $8.2 billion between U.S. Central and WesCorp, both corporate credit unions have issued medium term notes (MTNs) in the capital markets. These MTNs were issued under the Temporary Corporate Credit Union Loan Guarantee Program (TCCULGP).

U.S. Central and WesCorp have issued MTNs previously. WesCorp issued $2.0 billion between 2005 and 2006, and U.S. Central issued $1.4 billion between 1998 and 2004. On October 19, 2009, U.S. Central issued $4.0 billion comprised of two and three year maturities. On November 1, 2009, WesCorp issued $1.5 billion in three year maturities. The MTNs enhance funding stability at both corporates, though share deposits remain the most critical source of funding at each corporate.

Temporary Corporate Credit Union Share Guarantee Program

The TCCUSGP is an important program in stabilizing liquidity in the corporates. For this reason, it is important to reiterate some program facts to ensure participants understand key aspects of the program. This summary supplements the Fact Sheet that can be accessed at the following link (Hold CTRL & Click): http://www.ncua.gov/Resources/CorporateStabilization/RevisedFactSheet-DraftJune2009forShareGuarantee.docx

Under the TCCUSGP, generally all shares, exclusive of capital shares (e.g., paid in capital and membership shares) are fully guaranteed as to repayment. To have its shares covered under the guarantee, a corporate had to opt in to the TCCUSGP. Participating corporates, and their date of enrollment, can be found at (Hold CTRL & Click): http://www.ncua.gov/Resources/CorporateStabilization/2009/09-0601_Corporate%20_Credit_Unions_Participating_in_the_Revised_TCCUSGP.doc

The primary aspects of the TCCUSGP include the following:

• Shares are currently guaranteed through December 31, 2011;
• The guarantee may be extended upon a quarterly determination that such an extension is warranted to promote stability in the corporates. In August 2009, NCUA extended the guarantee through December 31, 2011. In November 2009, NCUA will determine whether to extend the guarantee through March 2012. If this action is approved, NCUA will alert all credit unions.
• Term certificates issued after a corporate enrolled in the TCCUSGP are guaranteed only if they have a maturity of two years or less. Term certificates existing before enrollment in the TCCUSGP are covered until the guarantee expires, or the maturity of the certificate, whichever occurs first.

For example, assuming the revised share guarantee went into effect June 1, 2009, (please refer to the link above to determine when your corporate enrolled in the TCCUSGP):

• CU purchases an 18 month CD from Corporate A on June 2, 2009. This certificate is guaranteed until its maturity.
• ABC CU purchases a 25 month CD from Corporate A on June 2, 2009. This certificate is not guaranteed at all.
• ABC CU owns an existing CD at Corporate A with a maturity of July 31, 2011. It is fully guaranteed until the CD matures (July 31, 2011).
• CU owns an existing CD at Corporate A with a maturity of July 31, 2013. It is guaranteed up until December 31, 2011 (unless the guarantee is extended beyond this date by NCUA).

OTTI Update
U.S. Central and WesCorp completed their assessment of Other-Than-Temporary-Impairment (OTTI) charges for the third quarter of 2009. U.S. Central recorded OTTI charges totaling $320 million for the third quarter of 2009, resulting in a reduction of remaining Member Capital Shares (MCS) to 11.3% of the December 31, 2008 balances. OTTI charges have fully exhausted Paid-in-Capital (PIC) I and PIC II balances and depleted MCS to $140 million as of September 30, 2009. WesCorp recorded OTTI charges totaling $356 million for the third quarter of 2009. OTTI charges have fully exhausted all PIC and MCS balances, and created a retained earnings deficit of $4.6 billion as of September 30, 2009. Both corporate credit unions have communicated this financial information to members. The third quarter OTTI was determined at both U.S. Central and WesCorp based upon the review of all private label mortgage backed securities by Clayton Fixed Income Services, Inc. The Clayton Fixed Income Services, Inc. third quarter reports are available to members that have executed the required non disclosure agreement and request the report through the websites of U.S. Central and WesCorp.

Proposed Corporate Credit Union Rule (Part 704)
The NCUA Board will present the proposed rule governing corporate credit unions at its November 19th meeting. The proposed rule reflects a comprehensive review of the existing corporate regulations. NCUA has also incorporated feedback obtained through the three onsite and one web-based Town Hall meetings held during September and October.

The National Credit Union Administration is the independent federal agency that regulates charters and supervises federal credit unions. NCUA, with the backing of the full faith and credit of the U.S. government, also operates and manages the National Credit Union Share Insurance Fund, insuring the deposits of nearly 90 million account holders in all federal credit unions and the majority of state-chartered credit unions.

 

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