Nevada credit unions face losses
The federal seizure of two corporate credit unions is causing some state credit unions to charge off millions of dollars in investments.
Also, federally insured credit unions are taking a financial hit because of new assessments for federal deposit insurance, because the government wants to increase deposit insurance funds in the wake of the corporate credit unions failures.
In March, the National Credit Union Administration, a federal agency, established conservatorships for Western Corporate Federal Union of San Dimas, Calif., and U.S. Central Credit Union of Lenexa, Kan. The federal seizures resulted from the write-down of asset-backed and mortgage-backed securities held by the corporate credit unions.
NCUA on Friday estimated that credit losses at WesCorp ranged between $3 billion and $7.9 billion. U.S. Central Credit's losses are between $600,000 and $6.5 billion, according to the federal agency.
The charge-off of WesCorp capital will hurt Nevada credit unions "to varying degrees," said George Burns, commissioner of the Financial Institutions Division.
"It is going to weaken some more than others but not to the degree that we are alarmed. We are concerned but not alarmed," Burns said.
The commissioner noted that the charge-offs are coming in the midst of a recession that has caused an increasing number of problem loans at financial institutions.
"Credit unions are facing the same challenges and pressures that banks are in the current financial crisis," Burns said.
WesCorp functioned like a federal reserve bank for credit unions, clearing checks and performing other functions, said Wayne Tew, chief executive officer of Clark County Credit Union.
To benefit from these services, credit unions needed to buy capital shares in Wes Corp, which became worthless after the federal takeover of the credit union.
U.S. Central was a credit union for corporate credit unions like WesCorp.
Clark County Credit Union reduced its net worth to 8 percent from 10 percent as a result of losses at WesCorp, Tew said.
"We are still well capitalized," he said.
Tew declined to disclose the dollar sum that the credit union wrote off because of WesCorp.
As a result of the loss, Clark County Credit Union's 39,000 members will not receive a bonus for 2009, like they did for last year. The credit union will need to keep more income so that it can return to 10 percent net worth, Tew said.
Bill Ferrence, general manager of Boulder Dam Credit Union, expects to charge off $4.7 million because of the credit union's investment in WesCorp. That leaves Boulder Dam Credit Union with $48 million in net worth, representing a more than 9 percent net worth ratio. He called that a "very, very safe" net worth ratio.
The collapse of WesCorp may indirectly affect Boulder Dam's 22,000 members, Ferrence said, because the credit union will have $4.7 million less to return to members in dividends.
Nevada Federal Credit Union lost no money to Wes Corp or U.S. Central. However, Nevada Federal Chief Executive Officer Brad Beal said it was required to pay a $6 million assessment from the NCUA like other credit unions that have federally insured deposits. The NCUA imposed the assessment after finding losses at the two corporate credit unions.
Nevada Federal charged off the $6 million in the first quarter because of the NCUA deposit insurance assessment.
Federal credit union assessments provide the first line of defense for federal credit union depositors, Beal said. But he said deposits from members of federal credit unions also are backed by "the full faith and credit of the U.S. Treasury."
Deposits at Boulder Dam and Clark County credit unions are privately insured by American Share Insurance of Dublin, Ohio, and the credit unions are not required to make payments to NCUA's deposit insurance program.
Executives at Silver State Schools Credit Union, another institution with private deposit insurance, did not return calls for comment.
Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.
