Some of you may have heard the news over the weekend about the National Credit Union Association (NCUA) move to place US Central CU and Wescorp CU in conservatorship.
I’d like to give you an overview of what happened and what it means to us.
- NCUA’s recently completed review of all of the investments in the corporate system (28 corporate CUs) indicated that the mortgage backed securities (MBS) of both US Central and Wescorp had deteriorated compared to previous valuations. Since the assets of both of these institutions consist of 90% investments, any sizable decrease in value would have a great impact on capital, probably bringing capital down to below regulatory levels. NCUA felt that the best way to manage the situation was to replace the Board and management at these two credit unions and place them under direct NCUA control.
- The liquidity of these two corporates has improved over the past two months and both should be able to hold their MBS until maturity.
- NCUA has reiterated that all deposits in all corporates remain fully insured and that both will continue operations as before.
- The new valuation done by NCUA has changed the calculation of the total impairment to the share insurance fund. Previously, NCUA calculated that an impairment of 51% of our NCUSIF deposit was necessary. They have now revised that to 69%.
What does this mean for Verity?
- We will need to recalculate the amount we need to record for the impairment of the NCUSIF. As permitted by NCUA, the state regulators and our auditors, we will record this in 2008.
- While we do not have to worry about any deposits we have at Wescorp, we have invested some capital. We learned on Monday that we will need to write this off on our balance sheet.
- We do not have any relationship with US Central.
- Wescorp’s MBS portfolio contained some sub-prime loans which may have deteriorated significantly. Our MBS portfolio does not contain any subprime loans.
The best way for us to weather this setback is to build capital. That is what we intend to do – through smart pricing and strategic growth.
Verity remains a financially safe and secure financial institution.
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