Press
$5.4 Billion in OTTI Reserves Remain Three Years After Five Corporates Seized; NGN Balance Currently Over-Reserved by $10 Billion
Opportunity for NCUA to Strengthen CU System by Postponing Corporate Assessment
WASHINGTON, DC (July 24 2013) — If NCUA assesses credit unions another $1 billion, as has been suggested, it would increase collateralization of the NCUA Guaranteed Notes to 154 percent, from the current 149 percent. Today, there are $27.3 billion in investments plus $4.1 billion of prior TCCSF premiums available to cover the last published NGN balance of $21.1 billion – more than $10 billion in excess coverage.
That’s a key finding in the final article in a Co-Ops for Change series analyzing the conserved corporates’ spreadsheets, which relied on NCUA-generated data. To demonstrate true engagement in managing the corporate balances, Chip Filson urges the Agency to postpone the 2013 TCCUSF assessment.
“I’m hopeful that NCUA will use this opportunity to position itself as a thoughtful, learning organization,” said Filson, Founder of Co-Ops for Change and Chairman of Callahan & Associates. “Right now, while deliberating on the corporate assessments, it’s possible to adjust course, play up the potential of the credit union charter, and avoid sacrificing credit union member-owners’ trust in the system simply to perpetuate a past approach.”
The latest analysis of the five corporates’ spreadsheets shows more than $5 billion in unused loss write downs, making it feasible that member-owner credit unions could recover some funds. Further, the affected securities have continued to pay principal and interest. Just from interest alone, the income from the securities adds up to nearly $50 million per year. That means even if losses ultimately are very close to the final numbers, the earnings in the interim will help offset original projections.
When the audited financial statements of the conserved corporates were issued in December 2009, the auditors judged that OTTI reserves should be approximately 27 percent of troubled assets. But when those same assets were refinanced outside the system, market funding required collateralization of 56 percent – more than double that percentage, even with an NCUA guarantee backed by the U.S. government.
“That’s a steep price for guaranteed liquidity that replaced in-place workouts,” Filson said. “The critical question is, Are the assumptions made at the time of the re-funding over three years ago still valid today?”
Along with the summary of the five corporates’ combined OTTI status, the final article hones in on WesCorp’s numbers. When WesCorp was liquidated in 2010 and its securities used to collateralize the NGN re-funding program, the $16.4 billion of assessments taken comprised 85 percent of its balance sheet. However, all of WesCorp’s other investments had been sold, so its OTTI of $6.8 billion was 41.9 percent of the investments taken. As of June 30, 2013, only 34 percent of WesCorp’s initial OTTI reserves are available after total losses of $4.4 billion. Nonetheless, that means 23 percent of the investment principal remains.
“Going forward, regulators must focus on building consensus that they are leading, evolving and crating solutions that fit the times, along with a promise to change to fit what’s needed in the future,” Filson said. “The goal isn’t about being right; rather, it’s to ensure that past practices evolve and lead to better solutions that are trusted as the best approaches for the industry and the current times. So everyone – from the newest Agency examiners to the longest-serving professionals – would act to place the member-owner at the center of any actions. A cooperative is meant to develop ‘win-win’ solutions for all stakeholders, and that’s the surest driver of safety and soundness.”
The full report can be found at www.coops4change.org.
About Co-Ops for Change
Co-Ops for Change is a grassroots movement to increase awareness both within the credit union community and among elected policymakers that our regulatory leadership should understand and support the seven cooperative principles. The regulatory process should consider credit unions’ cooperative character, as well as the shared economic value they create for people and communities. Credit union members, volunteers, professionals and industry supporters can learn more about the campaign at www.Coops4Change.org.