Money Indeed Changes Everything: An Open Letter To The NCUA Board

The NCUA could accomplish so much more by being open about how it plans to manage and distribute billions of dollars from the corporate credit union collapse and bailout.

 
 

Dear Chairman Rick Metsger:

In the Chairman’s Corner of the July NCUA Report, you outlined steps to ensure a more transparent annual agency budget process with the title “Money Changes Everything”. Elsewhere in the report, Board member Mark McWatters lists as one of the two “overarching issues” with the agency’s budget process “the lack of transparency and accountability to credit unions and to Congress.”

Mr. Chairman, you close the same Corner article with:  “We value input on ways to improve  (the agency’s) mission.  It’s never too late or too early to share a good idea.”  In that spirit I would ask that you take the lead in opening up to public discussion the management of  the assets in the Temporary Corporate Credit Union Stability Fund (TCCUSF) and five related Asset Management Estates (AME’s). 

Billions Of Member Funds

The nearly $300 million of NCUA’s annual budget pales in scope to the credit union funds the NCUA is now responsible for under the wind-down of the TCCUSF.

As important as the budget process is, the NCUA could accomplish so much more in terms of transparency and accountability to Congress, credit unions, and their 106 million members by publically reviewing and seeking comment on how it plans to manage and distribute billions of dollars from the corporate credit union takeovers.

Depending on which projection one selects from the several pieces of information, the amounts recovered from the legacy assets securing the NCUA Guaranteed Notes could be $2 billion to 4 billion — this surplus is in addition to any legal settlements. Those settlements now include a $1.1 billion settlement with RBS announced just this week that the NCUA says brings those total recoveries to $4.32 billion.

The NCUA could accomplish so much more in terms of transparency and accountability to Congress, credit unions, and their 106 million members by publically reviewing and seeking comment on how it plans to manage and distribute billions of dollars from the corporate credit union takeovers. 

Announcing Actions Without Accountability

The same July Report contains an unsigned article from the Office of Examination and Insurance that provides details about the legacy assets that have not been reported elsewhere. It’s titled “Corporate Resolution Program Reaches An Important Milestone.”

Specifically: the NCUA has received, after two recent NGN closeouts, 130 securities with a market value of $725 million; and later this year another 133 securities with market value of $1.1 billion are expected. The article adds that this total value of $1.7 billion is just 70% of the outstanding principal value.

The key sentence is: “For each of these 225 securities the NCUA will make ongoing decisions about selling them or holding them until some future decision point.” The immediate question is, who will make these decisions in the hundreds of millions and against what criteria? How will this performance be reported?

These decisions matter. These securities have no funding expense (NGN’s paid off). All the interest and principal payments accumulate to benefit the credit unions until the funds can be paid out in 2020 or 2021. If sold now for whatever reason, what would the funds be reinvested in that would give a higher return than these assets?

Why Would You Sell?

The article then contradicts the above statement by announcing the agency’s intent to sell “about 20 (securities) with a combined market value of $450 million, that have value very near or above their outstanding principal value.” 

In other words, the yield on these securities is so good in relation to other market options, that selling them would result in a premium gain. But, again, why sell to invest in lower-yielding government securities which will only reduce the return to shareholders?

The article then suggests that selling, versus accumulating principal and interest paydowns, could be used to pay off the remaining Treasury borrowing of $1 billion, which rolls over annually at today’s low rates.

But with substantial legal cash settlements due shortly plus cash paydowns from these securities, why is there any need to sell these valuable assets?

Who’s In Charge Here, And How Would We Know?

Throughout the seven years of the TCCUSF there has been summary information provided, often long after the fact that frequently just begs further questions. Repeated Freedom of Information Act requests for how the legal recoveries have been allocated among the AME’s have been denied. Recent questions submitted about the role of board members have gone unanswered.

The same July TCCUSF update implies that the cash flows from the legal settlements awarded the five AME’s and the TCCUSF have reached almost $3.0 billion.  But nowhere has the distribution of these cash settlements among the AME’s been explained nor has the TCCUSF detailed the sources and uses of AME funds. 

Money does indeed change everything! It is critical that the NCUA board provide open public discussion of the TCCUSF’s financing decisions before these are made, not after, to ensure the results are in credit union members’ best interests.  

There are no pressing deadlines. If there can be a preliminary budget forecast to use for public engagement on an incremental budget change of $5 million to $10 million, how much more vital is it that there be transparent and open discussion of decisions with hundreds of millions of the credit union movement’s money at stake?

The Core Issue: Trust

In fact, much more than money is at stake. The core of the entire cooperative financial system is trust: members trust credit unions with their money; credit unions trust the NCUA to provide transparent and effective oversight all paid from members’ funds. 

The last paragraph in the unsigned July TCCUSF update suggests an awareness of the need for greater credit union involvement: “The NCUA plans to engage stakeholders before implementing any large-scale plans that materially affect the timing and amount of potential refunds to federally insured credit unions.”

Those “large-scale plans” seem well under way. The time to engage the credit union owners of these funds is now.

 
 

Sept. 29, 2016


Comments

 
 
 
  • If you wish to further address NCUA'a transparency and stewardship of capital issues, below is another example. The top U.S. credit union regulator said on Thursday it had paid more than $1 billion in legal fees to two law firms to pursue lawsuits against various banks over their sales of toxic mortgage-backed securities before the 2008 financial crisis. The sum was more than double what another regulator that pursued a similar set of lawsuits against many of the same banks last year said it paid while obtaining an even larger amount of recoveries. The Federal Housing Finance Agency, which has acted as conservator for mortgage funders Fannie Mae and Freddie Mac FMCC since their government takeover in 2008, in September 2015 disclosed paying two other law firms $406.7 million.
    Michael Alexandre
     
     
     
  • During the heated debate about turning the Panama Canal over to the Panamanian government, William F Buckley. Jr. drove up the Reagan's driveway for dinner one evening and found a series of signs arranged in "Burma Shave" sequence (apologies Millenials and Gen Xers) which loudly proclaimed "WE BUILT IT. WE PAID FOR IT. IT'S OURS." Ironically, the signs on Reagan's lawn articulated Buckley's position. That the two could jest with one another over an issue that so deeply divided them politically provides a much needed model for civic and civil disagreement. Chip articulates his thoughts as pointedly and deftly as ever. And he is right. Of course he is. Would that more leaders would call out publicly, privately and politely for accountability in our federal government generally and from NCUA on the TCUSSF and AMEs specifically. Our body politic's frustration with government has turned into anger tinged with more than a dash of threatened rebellion. We saw it with the Occupy Movement and the Tea Party. Now we see it on a broader plane. And the root cause is government that is seen as serving itself, not the governed. It's bringing the worst out in many of us. Transparent, collaborative consideration of the disposition of these assets, our CU's assets, would not only help restore balance and confidence to the regulator and the regulated, it would set a new standard for responsive government. I believe our NCUA board members are men of reasonable reflection and sound judgement, whose overarching purpose is the public good. To them I say, "Gentlemen, an unprecedented, and hopefully not to be repeated, opportunity lays at your feet. Be the change we need and set an example for responsive and collaborative regulation." Please remember: We built the credit unions. We paid for these funds. They're ours.
    Sean Hession
     
     
     
  • Always Chip...you deliver the mail for the whole industry with respect to driving accountability to the regulator. A tall task few can do capably. Yet there you are! Few active participants in CUs can say what you say without probable negative consequences. Thank you!
    Scott Vandeventer
     
     
     
  • I'm watching the NCUA slowly lull the CU industry to sleep while collecting millions of dollars that they are banking and controlling until 2020-2021. I predict the NCUA will somehow keep almost all of it; fund weird budgets, distribute it to lawyers, or slide it over to the government's black holes. And somehow the CU industry will simply take all this in 2020-2021 as business as usual and realize they lost the battle for the refunds back in 2015, 2016, and 2017.
    Randy Karnes
     
     
     
  • When you endure a long period of death through a thousand cuts, do you really have the energy or the resolve to CRY OUT IN ANGER as the next cut is about to slice you to the bone? I know I can be overly dramatic, but as I watch the NCUA slowly lull the CU industry to sleep while collecting billions of dollars that they are banking and controlling until 2020-2021 I struggle to write headlines that would call people to action. I predict they, the NCUA, the unknown, will somehow keep almost all of it; fund weird budgets, distribute it to lawyers, or slide it over to the government’s black holes. And somehow the CU industry will simply take the final “cuts” in 2020-2021 as business as usual and realize they lost the battle for the refunds back in 2015, 2016, and 2017. And somewhere in the back hallways of the NCUA or some generic regulator office they are documenting how the CU crisis was manufactured, leveraged, and manipulated to be recorded as a monumental save by the regulator rather than the resource grab grandstanding play it was. Somewhere in the future someone will pull this story from the NCUA’s archives, dust it off, and do it again, knowing full well that CUs have short memories, are ineffective at defending their members’ capital, and passively entrenched in believing in the fairy tales the regulator community feeds them all. By now you have tuned out. Either because this article is just a reminder of the 1,000th cut or my rhetoric is just too dark and dreary to take seriously. But if you have a better way for me or Chip to call this out please let us know! Money might change everything for credit unions if they could just muster the energy to secure it! Tell me why I’m wrong!
    Randy Karnes