CenCorp: New Rules Will Have Little Impact on Michigan’s Corporate CU (Misc News: September 28, 2010)
The sweeping new rules approved by the NCUA on Friday are less invasive than originally proposed and will have little effect on daily operations of Michigan’s only corporate credit union, CenCorp, it said after the NCUA board vote.
In a Friday letter to executives of its member credit unions, CenCorp CEO Bill Walby said some details of the NCUA’s plan were more favorable than those originally proposed.
Also, on Monday, CUNA leadership held a conference call with member credit unions and leagues to offer an overview on costs of disposing of the legacy assets and the new rules that corporate will be subject to.
NCUA passed new regulations Friday, forbidding corporates from investing in private-label mortgage-banked securities, setting new requirements for corporate board governance and laying out its plan to deal with about $50 billion in legacy assets from the five corporates that it has placed into conservatorship, including three that were taken over Friday.
Because private-label mortgage-backed securities were a small part of CenCorp’s portfolio, Walby expects the rules to have little impact on its bottom line.
“CenCorp believes that its previous concerns were addressed and it will be able to generate similar interest income as it has in the past,” Walby said.
Still, Walby said that the rules from NCUA are 255 pages long, so its analysis is not yet complete. He said that CenCorp would provide additional analysis in October.
On Monday, CUNA President and CEO Bill Cheney said that the U.S. Treasury Department’s decision to become a co-signer on NCUA’s plan is a huge plus.
“That should give us all confidence that this is well thought out,” Cheney said.
Bill Hampel, senior vice president of research and policy analysis and chief economist for CUNA, said NCUA’s plan to dispose of the toxic assets is expected to cost about $8.1 billion, or an average of 7 basis points over the next 11 years, in addition to the $1.3 billion paid so far. Hampel said that there has been some talk of requiring higher assessments at the beginning to provide enough liquidity to allow NCUA to execute the plan. But Hampel said CUNA’s position is that a short-term bridge loan might be a better liquidity solution, allowing more level assessments from beginning to end.
He added that improvements in the overall economy might reduce the cost of the plan to dispose of the legacy assets.
Hampel said that local credit unions should continue to do business with the conserved corporates as NCUA winds down the businesses under a special two-year bridge charter.
Mary Dunn, senior vice president and deputy general counsel for CUNA said the new rules are “severe,” but added that NCUA will propose additional new rules regarding corporate in November. On the table will be new rules allowing natural person credit unions to belong to just one corporate and possible corporate member fees.
Click here to read CUNA's analysis of the NCUA's corporate actions.