NCUA Actions Spur More CUs To Shrink, Rather than Grow

Credit Union Journal Daily Briefing  |  Wednesday, June 23, 2010

ALEXANDRIA, Va. — Increasing numbers of credit unions are choosing to cope with NCUA's huge assessments by pushing down their asset size, instead of growing, in order to maintain their critical net worth ratios. They are doing this by managing their savings rates, in most cases, lowering rates in order to discourage new deposits or encourage marginally profitable depositors to withdraw funds.

"We've changed Patelco's strategy from being a rate leader in the market," in order to lower the denominator for the net worth ratio, said Scott Waite, chief financial officer for the San Francisco credit union giant, which has consciously reduced its assets from a high of $4.2 billion a year ago to $3.7 billion at the end of the first quarter.

The shrinkage has succeeded in pushing up Patelco CU's net worth ratio from 8.27% at mid-year 2009 to 9.54% at the end of May, even as total net worth has remained almost the same, according to Waite.

Other credit unions, healthy and not so healthy, are duplicating this anti-growth strategy as they expect NCUA's assessment last week of $1.1 billion for the corporate credit union bailout, and again later this year to replenish the National CU Share Insurance Fund, to eat away their net worth, pushing some of them further into prompt corrective action.

In announcing the $1.1 billion corporate assessment last week, NCUA said it will reduce the average credit union's net worth by about 13 basis points and push as many as 1,086 credit unions into the red for the second quarter when they are required to accrue the expense, and as many as 552 credit unions into the red for the year.