WASHINGTON (11/5/09)--Credit unions should not have been required to write down their capital in U.S. Central CU and Western Corporate CU (Wescorp) based only on estimates of future losses, Credit Union National Association (CUNA) President/CEO Dan Mica emphasized in a letter to National Credit Union Administration (NCUA) Chairman Debbie Matz on the eve of a meeting where this issue will be discussed. “We urge the board to reverse this decision and allow credit unions that had capital investments into these corporates to retain the ability to recover at least some of their capital, in the event the actual losses relating to asset-backed securities are not as large as NCUA has estimated they will be,” Mica wrote. “As we have stated, the central issue is that it is unfair to require credit unions to write down their capital in these corporates on the basis of estimates of their future losses, with absolutely no possibility of future recovery should those estimates turn out to be inaccurate,” Mica noted. The CUNA leader made these points as the NCUA board prepares to hold a meeting today with corporate credit unions on the capital extinguishment issue. CUNA will be among those attending the meeting. Mica told Matz that CUNA disagrees with NCUA’s Letter No. 09-CU-10, which says NCUA corporate rules require the depletion of corporate capital. He also took issue with those at NCUA who have indicated Generally Accepted Accounting Principles dictate depletion of capital in Wescorp and U.S. Central. “We do not agree, and neither do the accounting practitioners and experts we consulted on this matter,” he added. NCUA has several options it can pursue to address the unfair treatment of corporate capital, CUNA said. These could include:
* Refraining from depleting all capital. NCUA has this authority, CUNA contends, and it would mean some capital could be recovered if all of the losses do not materialize; * “Freezing” rather than deplete capital accounts and allow corporates to operate with negative retained earnings under certain conditions; * Precluding the use of new capital to cover legacy losses at corporates; and * Using the Corporate Stabilization Fund to help manage the corporates’ losses as they are realized.
Mica concluded by urging the NCUA following today’s meeting to “expeditiously reconsider and rescind” its decision on capital depletion.