NCUA says guidance coming on 'extinguishment'

ALEXANDRIA, Va. (4/16/09)—The National Credit Union Administration (NCUA) intends to issue its next accounting guidance on corporate credit union issues Friday as part of its weekly release of information on the corporate situation.

NCUA Deputy Executive Director Larry Fazio, on a conference call with reporters Wednesday, said the guidance will address the impairment—what the agency is now terming "extinguishment"—of any OTTI statement that U.S. Central FCU or Western Corporate FCU (WesCorp) make on their March 31 financial reports. The two corporates were place in conservatorship in March.

Fazio said that to the extent either entity has to execute an OTTI—or other-than-temporarily-impaired--charge for the March statement, it will be realized as a loss that will "eat through" their retained earnings, and then their paid-in capital accounts, and, to a varying extent, their membership capital accounts.

"So that will extinguish those portions of the membership capital and paid-in capital," Fazio said. "Therefore credit unions that are members will have to write down on their financial statements those instruments, and realize a loss on those."

Credit Union National Association (CUNA) Deputy General Counsel Mary Dunn noted Wednesday that credit unions have raised serious concerns about the implications of the extinguishment of capital in the two corporates. CUNA, she said, is pursuing these concerns with NCUA board members.

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