Financial consultant and industry veteran Marvin Umholtz praised corporate credit unions for thinking outside the box when brainstorming new strategies. In particular, he cited First Corporate Credit Union Pete Pritts' recent statement he's considering breaking off some services into CUSOs or converting to a mutual bank charter.
However, Umholtz said those efforts "might prove to be a hopeless exercise."
"For all practical purposes, there is no capital left in the corporate credit union network," he said. "Corporate credit unions exist today only due to regulatory forbearance and conservatorships."
Though he said he was impressed by the work the NCUA put into proposed corporate regulations, the former industry lobbyist said he doubts natural person credit unions will "throw good money after bad" and recapitalize corporates. And he cautioned that theoretically, at least, members could challenge credit union officials in court for "mishandling" equity if they reinvest in what is perceived to be a risky corporate.
The NCUA may have to run corporates like "public utilities" until legacy asset and investment loss issues are resolved, he said. That could take the entire 10-year timeframe the NCUA has proposed for corporates to reach new capital standards, which is "a long time to leave the NCUSIF and TCCUSF exposed."
"Wishing for a dramatic improvement in market value is no substitute for contingency planning," Umholtz said.
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