U.S. Central Credit Union may form "bad bank": CEO

[Joanne98]

KANSAS CITY (Reuters) - Two days after regulators seized the largest U.S. corporate credit union, the newly installed CEO said he is considering a variety of options, including setting up a "bad bank," to handle a mixture of troubled mortgage assets.

Several options are on the table at the $34 billion-asset U.S. Central Federal Credit Union, said new CEO James Nance, who quit as chief administrative officer at Icap Capital Markets Llc in New Jersey to helm the Lenexa, Kansas-based institution at the request of regulators.

In addition to setting up a separate entity, a so-called "bad bank," to take toxic assets off the books of U.S. Central, Nance told Reuters in an interview that he will look at options for securitizing the troubled assets in ways that would allow for them to be held for an extended periods, and he will explore the sale of certain assets to non-credit union buyers.

"We want to try to avoid having the situation deteriorate," said Nance, who prior to his work at Icap, oversaw asset and liability management at U.S. Central from 1993-1996.

U.S. Central is the largest of two U.S. corporate credit unions taken over on Friday. The National Credit Union Administration (NCUA) also took control of Western Corporate (WesCorp) Federal Credit Union of San Dimas, California, which has about $23 billion in assets. NCUA said the two had expected credit losses greater than total capital.

The institutions provide liquidity and settlement services tapped by more than 90 percent of the nation's nearly 8,000 credit unions, which are member-owned.

Regulators said that U.S. Central's problems stemmed in part from its investments in "private label" mortgage-backed securities and collateralized mortgage obligations. The instruments earn higher yields but do not have implicit government guarantees.

Although U.S. Central officials said the bulk of the securities continue to pay off as expected, and more than 70 percent held highly favorable AA or AAA ratings as recently as 2007, accounting rules forced them to write down the value of those securities dramatically as home values plummeted around the nation.

http://www.reuters.com/article/ousiv/idUSTRE52L1S920090322

[Po_d Mainiac]

1. The cost to your local Credit Union

from the increased premiums to NCUA alone will cause a ton of hurt. Another example of an irresponsible institution hauling down the rest of the sector.

Although U.S. Central officials said the bulk of the securities continue to pay off as expected, and more than 70 percent held highly favorable AA or AAA ratings as recently as 2007, accounting rules forced them to write down the value of those securities dramatically as home values plummeted around the nation.

The above quote is pure bullshit. As late as 2007 the rating agencies were passing out AAA's like candy at a 4th of July parade. Now they are junk. Why? Cause they were junk then, just adorned with a pretty bow on the wrapper. They ain't so pretty without the wrapper. The rating agencies should be fined into the "dark ages" before they get sued to the same time period and the "ill gotten gains" passed over to law firms, instead of the public that paid the price.

Dropping "mark to market" will only delay the inevitable. Will it soften the landing, or force a nosedive into the tarmac, remains to be seen.