A nearly $500 million fourth-quarter other-than-temporary impairment blew through what was left of the $35 billion U.S. Central Federal Credit Union's member capital shares and impaired the NCUSIF's $1 billion capital note by $331 million.
While the loss wasn't a surprise-most retail corporates also reported OTTI on their mortgage-backed securities in the fourth quarter-the impairment of the capital note leaves credit unions wondering if their NCUSIF assessment bill will increase as a result.
NAFCU President/CEO Fred Becker said he doesn't know if the NCUA accounted for the new losses when it estimated last October that this year's corporate stabilization assessment would run between five and 15 basis points. However, according to his math, he thinks the regulator accounted for "at least some" loss on the NCUSIF note.
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TriCorp Federal Credit Union President/CEO Steve Roy, who also chairs the Association of Corporate Credit Unions, said almost all corporates, including his $952 million Tricorp, impaired 100% of his U.S. Central capital in November 2009. So, the new losses shouldn't impact retail corporate balance sheets.
However, Roy did express "a little surprise" that the losses "went as far as they did into the impairment of the capital note." He added that "for the sake of all credit unions, I hope they can stop the bleeding soon."
Roy said he didn't know if the new losses would increase corporate stabilization costs, but like Becker said he thought at least some of the losses have already been accounted for by the NCUA.
CUNA Chief Economist Bill Hampel said U.S. Central's new losses are "unlikely to change the ultimate cost to credit unions of the corporate stabilization program" because that figure will be determined by actual losses eventually occurred, not changes in current estimates of those future losses.
NCUA spokesman John McKechnie would not say whether the losses would impact the assessment, but told Credit Union Times the NCUA Board will make a determination about the amount of the assessment later this year based on the financial information available at that time.
Becker said he is pressing the regulator to "further refine" its assessment estimates to give natural person credit unions time to prepare for the actual number.
Typically, a credit union earns 100 basis points in a year, and credit unions may be looking at a 40-basis-point assessment when accounting for both corporate stabilization and restocking the share insurance fund. Becker said such a large share of revenue is a significant budget item, and the NCUA shouldn't drop it on credit unions "like a rock." Rather, the NCUA should provide credit unions with estimate updates.
The additional losses and growing concern among natural person credit unions about assessment charges puts further pressure on the NCUA to release its plan to address corporate legacy assets, particularly the severely downgraded private label mortgage-backed securities responsible for the majority of system losses.
Becker said the NCUA is working on the plan, but he hasn't seen it yet. He did say, however, that NCUA must release those plans before it finalizes and announces new Part 704 corporate regulations.
CUNA Senior Vice President of Regulatory Advocacy Mary Dunn said her trade group has made recommendations to the NCUA regarding the legacy assets. "NCUA has invited us to remain engaged with them on this," she said.
U.S. Central's private mortgage-backed securities portfolio deteriorated further during the fourth quarter despite signs of recovery in the economy, according to notes that accompanied the financial reports. Monoline insurer Ambac was blamed for $142 million worth of the quarter's OTTI, after it announced it will only pay an estimated 80% of projected payments.
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