The National Credit Union Administration (NCUA) said it took under conservatorship three more troubled corporate credit unions this afternoon as part of is effort to shed the corporate system of toxic assets.

The three failed corporates, Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate, will join U.S. Central FCU and WesCorp FCU, under conservatorship since March 2009, and have no chance of being revived, the agency said.

The troubled assets held by the five corporates, mostly underwater MBS, amount to 98% of the $50 billion worth of troubled assets in the corporate system, NCUA said.

The corporates will undergo a good bank/bad bank plan, under which NCUA will strip the troubled assets from the failed corporates and market them to Wall Street investors and to natural person credit unions as NCUA Guaranteed Notes, with the stock market ticker of NGM. The notes will be backed by NCUA and the full faith and credit of the federal government and be permissible investments for natural person credit unions.

NCUA has already sold $8.5 billion worth of the securities held by U.S. Central and WesCorp to investors. The sale of the securities is being managed by Barclays Capital.

The good assets of the failed corporates, including the payments system functions, will be separated out as good banks and will continue to serve their members.

The five failed corporates hold a total of 65% of all assets in the corporate system and serve more than 4,600 natural person credit unions.

The legacy assets plan includes an extension of the corporate bailout, scheduled to expire in 2016, until 2021, and an increase in the estimated cost from an initial $6 billion to as much as $10.5 billion, minus the $1.3 billion credit unions have already paid for the corporate assessments this year and last. The Treasury Department has approved the extension of the corporate bailout for the additional five years.

Yesterday, ASR sister publication Credit Union Journal reported that NCUA is seeking bids on about $800 million of CMBS collected from U.S. Central FCU and WesCorp FCU, the opening efforts on its bid to securitize as much as $50 billion in troubled mortgage securities held by the corporate credit unions.

The bonds, which are being offered through Barclays Capital, are guaranteed by NCUA.

NCUA is testing investor appetite for the bonds with the initial offering and hopes to remove as much as $50 billion in toxic assets from the books of the corporates, so-called legacy assets, through securitizations like this.

NCUA Officials Speak

In other words, what the NCUA is trying to do is transfer the legacy assets from five seized corporates into a trust and securitize them. The NCUA said that the trust framework should allow it to securitize the these assets without recognizing unrealized losses, which would have caused an immediate, severe writedown on the investments.

"This action to deal with the impaired securities on the corporates' books — together with reforms to the NCUA regulation that governs the corporate system — will create stronger safeguards for the nation's entire credit union system," said NCUA Chairman Debbie Matz."The credit union community has long hoped to see a coordinated, market-based, least-cost solution to the corporate crisis, and we have delivered that today," she said.

The trust structure also offers greater transparency, said Larry Fazio, NCUA deputy executive director, adding that, "it will be on autopilot, out of our hands."

Since the bonds will be offered to all eligible investors, prospectus documents as well as the other disclosures will be available publicly, and will reveal facts on all underlying collateral, including data on current performance.

"Credit unions will be able to track the performance of the bonds," Fazio said.



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