The Corporate Bailout Fund Grows While Credit Unions Wait

The need for monitoring grows as does the bank account as another $161 million is added ahead of the fund’s 2021 shutdown date.

 
 

The NCUA’s pot of money for repaying credit unions for the corporate bailout keeps growing and so does the need for transparency as the system moves toward 2021, the year the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) is scheduled to shut down.

As of March 31, the five corporate Asset Managed Estates (AMEs) have added another $161 million in value, bringing to more than $928 million available for shareholders of those failed corporate credit unions. More than 90% of this current gain was from the increase in the value of investments used to collateralize the NCUA’s Guaranteed Note program (NGN). The rest was from earnings on the securities after paying guarantee fees and interest on the NGNs.

The only source of recovery for the TCCUSF is from the AMEs created to manage and ultimately distribute the funds left from those five corporate credit unions. The $72.6 million value increase in Constitution and WesCorp is the primary contributor to the $78.2 million in net income reported by the TCCUSF for the first quarter of 2016. 

Meanwhile, there’s an $89.2 million increase in the payout prospects for the shareholders of Southwest, Members United, and US Central. This ongoing increase of value directly benefits the shareholders of these liquidated corporates whose liabilities to the TCCUSF have already been covered.

The balance sheets for the five AMEs at March 31 show the following net positions:

AME Name Gain in AME Value 1st Quarter Net AME Position at 3/31/16
Southwest $10.4 million $340.1 million
Members United $13.8 million $197.8 million
US Central $65.0 million $1,390.7 million
Constitution $2.3 million ($5.9 million)
WesCorp $70.3 million ($3,996.8 million)
TOTALS $161.8 million ($2,074.1 million)

Credit unions with member capital share accounts in the first three corporates above will receive a payout. Constitution’s ongoing progress plus its ownership share of US Central’s distribution should result in a return to those credit union owners as well.  

The Payback Phase Of The Recovery

The trends in the AMEs for over three years have documented the increasing return to the member-owners of the corporates, with the exception of WesCorp. The key now is to monitor the allocation decisions being made by the NCUA to ensure the distributions are timely and made in full.

At least three important questions are outstanding which show the need for fuller disclosure:

  1. What happened to the $3.1 billion in the NCUA’s announced legal recoveries? There was no legal settlement revenue shown in the first quarter AME accounts. The prior six years of audited statements show only $2.4 billion in settlement income less almost $590 million in legal fees. How was this $2.4 billion distributed among corporate AMEs and lawyers; and where is the remaining $700 million?
  2. What are the sources and uses of cash during this process? The TCCUSF statements should show that, so the interactions between the AMEs and the fund can be tracked. Right now it is unclear where the TCCUSF is getting its cash, for example the $700 million paid to the U.S. Treasury Department in 2015’s final quarter.
  3. What were the costs and losses in the “set up period” following the September 2010 seizure of the five AMEs? The costs of the securitization and losses on sale or transfer of securities to the bridge corporates have never been disclosed. Instead a collective $7.4 billion aggregate deficit was reported in the TCCUSF at the end of 2010. This amount is much more than the collective deficit the five corporates were individually reporting. In fact, three corporates reported no net worth deficit even after recording more than $10 billion in Other Than Temporary Impairment (OTTI) reserves. What are the expenses and costs that created this increased deficiency from what the corporates were reporting? 

Only WesCorp’s OTTI reserves as of September 2010 were less than the losses subsequently reported for the legacy assets for each corporate. The projected payback to corporate shareholders from NCUA’s numbers above does not include the $1.0 billion to be paid by US Central to the TCCUSF. With more than $2.0 billion in surplus funds, a number that is still growing, the challenge now is to create an ongoing, fully transparent dialogue on the management of these member funds.

Withholding payment on these surpluses until 2021 means most participants in the saga that began with the corporate credit union seizures in 2009 will have long since left the scene. 

Withholding payment on these surpluses until 2021 means most participants in the saga that began with the corporate credit union seizures in 2009 will have long since left the scene. The outcome at that time can only be satisfactory if the full facts are presented along the way.  Without this accountability, questions will continue to haunt this effort about what really happened and why.

 

 
 

July 7, 2016


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