Priority One and the Acquistion of WesCorp by Federal Regulators
On January 1, 2007, the date Charles R. Wiggington, Sr. began his appointment as President of Priority One Credit Union, he inherited a credit union that was in the process of growing and whose Net Income exceeded $172 million. For all intents and purposes, the credit union was financially stable and the future looked promising.
This past Saturday, an article appeared in the Los Angeles Times, describing the seizure by Federal regulators of Western Corporate Federal Credit Union of San Dimas ["Wescorp"] and the U.S. Central Federal Credit Union of Lenexa, Kansas. The take-over is going to have an impact on all credit unions, including negative ramifications on those credit unions that are struggling financially.
But what will this mean to Priority One whose business is in decline as a result of poor management and the erratic and failed and business decisions of its incompetent President and ignorant, Board of Directors.
He started his appointment on January 1, 2007, inheriting a thriving credit union free of internal conflict and few external adversities. So what will he do, not that Westcorp seized?
LOS ANGELES TIMES
March 14, 2009
Regulators seize top two U.S. 'wholesale' credit unions Western Corporate Federal Credit Union of San Dimas and U.S. Central Federal Credit Union of Lenexa, Kansas, are placed under conservatorship to stem mounting losses caused by mortgage-related bonds.
By David Pierson and William Heisel
March 21, 2009
Federal regulators seized control Friday of the nation's two largest "wholesale" credit unions -- with combined assets of $57 billion -- in an emergency move to stabilize the nonprofit banking system used by 90 million Americans.
The National Credit Union Administration abruptly placed Western Corporate Federal Credit Union of San Dimas and U.S. Central Federal Credit Union of Lenexa, Kan., under conservatorship to stem mounting losses caused by mortgage-related bonds.
The so-called wholesale, or corporate, credit unions serve the broader industry and not individual consumers.
Western Corporate is one of 27 wholesale credit unions that serve the nation's 8,000 retail credit unions.
U.S. Central is even larger, serving Western Corporate and the other wholesalers.
Despite the seizures, the NCUA said service would not be interrupted for either institution. U.S. Central holds $34 billion in assets and Western Corporate has $23 billion in assets and 1,100 retail credit union members.
Though it has not experienced the same financial pain as banks, the traditionally conservative credit union industry has suffered significant losses in recent months after venturing into new areas such as commercial loans.
Both U.S. Central and Western Corporate have seen a dramatic drop in their capital positions because of the rapid loss in value of their mortgage-backed securities holdings.
Friday's action was taken after the federal government completed an analysis of mortgage- and asset-backed securities at the nation's corporate credit unions and determined "an unexpectedly high concentration of risk resided only in the two conserved corporate credit unions," the NCUA said.
In January, the government announced that it would guarantee uninsured shares at the corporate credit unions and infuse U.S. Central with $1 billion in capital in response to diminishing liquidity and asset values.
The cost to the newly established insurance fund as a result of the two conserved credit unions' devalued assets is estimated at $1.2 billion apiece, said John McKechnie, a spokesman for the credit union agency.
"All the insured institutions will ultimately have to replenish the funds," McKechnie said. A formula to do so has yet to be determined, he added.
An important measure of credit union health is the ratio of the fair value of investments against the fair value of liabilities. The NCUA wants to see credit unions stay above 3%. Western Corporate was at 3.32% in December 2007.
By December 2008 it had dropped to negative 8.2%. U.S. Central had an even steeper drop, from 1.6% to negative 27.58%.
The credit union agency's rules require it to run financial performance tests on a credit union that drops below 3% every month until it climbs back above that threshold.
Central had $46 billion in assets in March 2008 and was down to $34 billion before the seizure. Western Corporate had dropped from $29.8 billion in assets to $23 billion.
"I think they're trying to stabilize them now before their credit union members start pulling their deposits out," said Bert Ely, a Virginia banking consultant. "This is something that has been building for a long time and the NCUA has had a pretty good handle on it. Obviously they decided that they needed to take more serious measures than they have taken in the past."
Unlike in last year's seizure of IndyMac Bank, none of the credit unions' customers are likely to lose any money with this takeover because of the guaranteed insurance measures.
There has been a lot of consolidation in the industry over the last two years, and at least one of the two credit unions could end up merged with another, Ely said.
The move came unexpectedly to Western Corporate employees late Friday afternoon.
"I was taken by surprise by this just like everyone else," said spokesman Walter Laskos, speaking from his car after he had to turn around on the freeway and head back to his office. "There's a number of [federal regulators] at our corporate headquarters right now."
Another spokesman for the credit union, Kevin Lytle, said the regulators at the headquarters announced that they had already installed a new chief operating officer.
"We're just trying to figure out what's next," Lytle said.
A spokesperson for U.S. Central could not be reached.
Currently, Priority One Credit Union is juggling several problems, all which have simultaneously undermining the credit union's ability to develop new business. Inexplicably, t he credit union's members and potential members, don't seem as interested in what Priority One has to offer as they were in the years before Charles. R. Wiggington, Sr. was appointed President. Another problem is that account closures have increased and are offsetting the number of new accounts opened each month.
In 2007, he declared he would take Priority One to heights never achieved under his predecessor and last year, he selected without assistance and purchased a $600,000 phone system that has been marred by continual technical problems. What's more, the credit union is having to pay out hundreds of dollars per month, needed to hire technicians to respond to the ongoing issues affecting President Wiggington's phone system.
Last year, the credit union spend immense amounts on legal fees, primarily to protect the President when he was accused of sexually harassing a former employee. The credit union also paid out a large sum to the investigator who conducted inquiries which in time proved the President had in fact violated federal law.
Recently and out of desperation, he asked the staffs of all branches to please submit suggestions on how to reduce spending and increase new business.
The problems he's introduced have not only serve to deplete the credit union but have caused it to lose its competitive edge. What's more, his illegal acts and business failures have all been sanctioned and subsequently, covered-up by the ignorant Board of Directors.
Last year in an effort to create the appearance of success, the President borrowed $20 million from Priority One's line-of-credit, something no prior President had ever done. The reasoning behind his decision to immerse the credit union in added debt was to apply the loan to the credit union's net income and thus create the appearance that net income had increased as a result of new business. Nothing could be further from the truth. What's more, the credit union has been forced to pay $30,000 to $33,000 each month, in interest alone while the principle remains unpaid, to date.
So what will President President Wiggington do to ensure Priority One is able to pay its fair share to the NCUA and needed to stabilize the losses which impacted Wescorp?