WASHINGTON-NCUA outlined four potential futures for the corporate credit unions that have been taken into conservatorship. The question now is which of these alternatives will win out. The four alternatives for member credit unions are:
- Charter a new corporate credit union to purchase and assume the assets of the bridge corporate.
- Purchase bridge corporate operations through a CUSO or external party
- Request a merger with one of the remaining 22 viable corporates
- Seek an alternative service provider either within or outside the CU system.
NCUA has said it is already looking at a P&A for Constitution State Corporate, but that still leaves the door open for the other conserved corporates. "Because the capital requirements (in the new corporate rule) are quite high and are tied to assets and are hard to get, corporates will have to operate with much smaller balance sheets than in the past. They will be agents working on a fee basis, rather than financial intermediaries working on balance sheet margins," said CUNA Economist Bill Hampel. "It's way too soon to tell how this will all shake out, but we know there will be substantial consolidation among corporates. Some of these very large corporates have big payment settlement infrastructures that credit unions likely will want to maintain."
While it's too soon to say for sure which options the 4,600 credit unions that are served by the five conserved corporates will choose, there are some factors that at least point away from one of them.
"The most difficult and cumbersome of the four options would be chartering a new corporate," said CUNA Associate General Counsel Mary Dunn.
And while at first blush it may seem hard to imagine any of the still-viable corporates having the wherewithal to absorb giants like WesCorp, NAFCU's Carrie Hunt said not to rule out the merger option. "These coroporates are not going to be the same at the end of the [good bank/bad bank] process," she said. "By the time they go through the whole 24-month process, there will be a lot of constriction."
With some CUs still feeling an affinity for the corporates and others feeling some real enmity, going forward, Hampel said CUs may need to eliminate those "feelings" from the equation. "Credit union are going to make clean business decisions," he said. "Corporates are going to be much different entities in the future, and credit unions will have to put both enmity and past ties behind them."
Dunn said one of the concerns CUNA has been hearing from credit unions is whether anyone will be willing to serve on the boards of corporates. Of equal concern: who is going to be willing to capitalize and recapitalize the corporates? "The different business model should be an incentive," she noted. And despite the Fed paying interest on reserves, credit unions may still find corporates to be the better deal. "The Federal Reserve or the Federal Home Loan Banks may not be as good of an option as some others are."