First Entertainment CU officials believe that should WesCorp loss projections not materialize and asset values recover, then in all fairness those recovered funds should be returned prorated to the original owners, including to First Entertainment, to replenish capital and reserve accounts. First Entertainment has an obligation to protect its membership's original WesCorp capital investment and it has a responsibility to engage in all reasonable efforts to protect the credit union membership's assets.
First Entertainment further believes that even if it is unlikely that these WesCorp assets would recover, no one can predict the future. Ethically the NCUA should do everything that it can to address the situation fairly. Fairness would require that any recovery be shared with those that took the loss in proportion to their loss. First Entertainment contends that current holders of depleted capital accounts have rights to any future earnings on corporate CUs' legacy assets.
First Entertainment also calls on the NCUA Board to embrace a legal and regulatory approach designed to prevent capital extinguishment and that protects the original owners' rights. The NCUA's apparent resistance to this approach raises questions concerning the agency's rationale, motives, and desired outcomes. The NCUA should have done and still should do everything possible to protect First Entertainment and other credit unions that took a loss from the corporate credit union impairments.
First Entertainment considers untenable the NCUA's current interpretation of accounting rules that require corporate credit unions to impair investments based upon future loss estimates, and if actual losses aren't as high as estimated, they are prevented from applying earnings directly to capital accounts. First Entertainment is also unconvinced that earnings or losses from legacy assets cannot be isolated or set aside in ongoing corporate credit unions to ultimately benefit the original holders of depleted capital accounts.
In the interests of ensuring the NCUA's full accountability and transparency on this issue, First Entertainment requests full disclosure concerning the agency's handling of the corporate credit union legacy assets as well as NCUA's serious consideration of how capital holders of record can benefit if confirmed losses are less than recognized losses.
There are a number of unanswered questions about NCUA's rationale, motives, and desired outcomes:
Why is the NCUA so adamantly against the fair treatment of current holders of depleted capital accounts at WesCorp and other corporate credit unions — especially when the agency states that such capital recoveries are unlikely?
Are there certain yet — unrevealed benefits related to the recovery of funds that inure to the NCUA such that the agency wants to pursue an alternative regulatory agenda rather than to protect original capital account owners' rights?
Does NCUA plan to channel recovered funds from these legacy assets to the National Credit Union Share Insurance Fund (NCUSIF) or the Temporary Corporate Credit Union Stabilization Fund rather than to the original owners?
Is the NCUA planning to force each credit union to recapitalize WesCorp and/or other corporate credit unions before the credit union would be eligible to share in any recoveries from the legacy assets?
Due to its current massive obligations to the U.S. Treasury and the Federal Financing Bank, is the NCUA's apparent entrenched opposition based upon mandatory directives from the U.S. Treasury?
Charles Bruen, President/CEO
First Entertainment CU, Hollywood, Calif.