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CUNA report makes sense of legacy asset numbers for CUs
WASHINGTON (4/8/11)--The Credit Union National Association (CUNA) has released to its member credit unions and leagues a white paper that provides an overview of the wide range of estimates that have been presented regarding potential losses on corporate credit union legacy assets, and tries to make sense of the numbers for credit unions. As background, the CUNA report notes that the financial crisis of 2007 to 2009 wreaked havoc on some securities held in corporate credit union portfolios--with most of the troubled assets found in the portfolios of the five corporates that were eventually conserved by the National Credit Union Administration (NCUA). Once conserved, the troubled assets fell under the management of the NCUA’s Corporate Stabilization Fund, which is funded by assessments against credit unions, after the depletion of the capital of the five corporates. The agency’s legacy assets plan entails placing the assets in a trust and issuing NCUA Guaranteed Notes to fund them until they either amortize and mature, or default. The CUNA white paper is titled, “Estimating the Value of Legacy Assets: What We Do and Don’t Know About the Ultimate Cost to Credit Unions of the Corporate Stabilization Fund.” It posits that the crucial question facing credit unions on legacy assets is “how large are the remaining losses to be paid” over the next 11 years of the program? To an extent the answer to that question, according to white paper author and CUNA chief economist Bill Hampel, is “unknown and unknowable.” It depends on the pace of the economic recovery, and particularly on the outlook for unemployment and home prices. However, Hampel argues that “rigorous analysis” can narrow the range, thereby helping credit unions plan for the future. With the announcement of its Legacy Assets plan last September, the NCUA released a range of total loss estimates of $14 billion to $16 billion. CUNA, however, says its analysis of all available information to date shows the range of ultimate losses is wider than that, from $9 billion to $16 billion. These ranges depend on different scenarios of future home prices and unemployment. Assuming a moderate continued economic recovery and no significant further reduction in home prices, the CUNA white paper suggests the ultimate cost may likely be closer to $12 billion than $15 billion. “More important than any specific valuation of the legacy assets is a basic understanding by credit unions of the issue. That is what this white paper seeks to address,” Hampel wrote. Specifically the white paper:
* Generally describes the nature and amount of the legacy asset portfolios of the five conserved corporates; * Describes how three concepts of valuation of a portfolio of troubled securities might vary; * Explains that what we know for sure is very limited; * Explains at a high level how rigorous portfolio valuation models work, and reports on the results of publicly available valuations using such valuation models; * Reports on an important analysis of a subset of the legacy assets (those acquired by U.S. Central and WesCorp) by MEMBERS Capital Advisors (MCA), a subsidiary of the CUNA Mutual Group. The MCA analysis is being released with this white paper for the first time; and * The white paper and MCA analysis are available only for the internal use of CUNA members.
CUNA members can access the full report using the resource link below.


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