Voluntary NCUA assessments

After reading the NAFCU write up on the voluntary NCUA assessments I did a calculation of what it would cost my credit union, Department of Commerce FCU.  We're a $250 million credit union located in Washington, DC.  We have approximately $220 million in member shares.  We are very profitable.  We do not believe in having lots of liquidity around in this low rate environment.  Our goal is to be borrowed overnight at least a few days from FHLB every quarter.

I assumed a six percent share growth rate, uninsured shares of $30,000,000 that remained constant over time.  Recently we bought a beautiful bond with a yield of 3.23% so I assumed that as the opportunity cost over time of the voluntary assessment.  I assumed we would contribute 36 basis points for NCUA to reach the $1.5 billion threshold and 12 basis points to reach the $500 million threshold.  That would mean about $209,000 for 12 basis points and $627,000 for 36 basis points.

Given these assumptions and the assumptions for future assessments that NCUA provided for each of these scenarios here's the calculations I came up with.

Total cost over 11 years of no voluntary contribution:                               $2,994,840

Total cost over 11 years with a 12 basis point voluntary contribution        $2,938,953

Total cost over 11 years with a 36 basis point voluntary contribution        $2,983,530

Total cost plus opportunity cost of 12 basis point voluntary contribution    $3,012,651

Total cost plus opportunity cost of 36 basis point voluntary contribution     $3,206,125

One more point I didn't consider and that is that the amount contributed would decline as assessment amounts are taken from the prepaid amount so the total plus opportunity cost is probably less. 

The conclusion I reach from the above scenario is that the difference between not voluntarily contributing and voluntarily contributing is chump change given an 11 year window.  I would be inclined to be in favor of making a voluntary assessment if it assists the NCUA in assisting the movement because the incremental difference over the 11 year time horizon is so small. 

If you have questions or would like to see my calculations please call me at 202-482-1082 or drop me a line:  eclark@docfcu.org .

Notes from NCUA's Townhall Meeting

Yesterday afternoon I went to the NCUA town hall meeting on the corporates.  Overall I came away impressed with the job that NCUA did cleaning up the mess.  They estimate the losses in the conserved corporates at between 13.9 and 16.1 billion.  I think that may be low particularly when rates start rising and the rates start putting pressure on the borrowers underlying the collateral.  (Almost all subprime and Alt-A.)  I wouldn’t be surprised to see that number increase by 2 to 4 billion.  The bridge corporates being put in place of Wescorp, Southwest and Members United will be in place for 24 months give or take.  The member credit unions can decide whether to charter a new corporate, form a CUSO to take over the services or sell the corporate.  Constitution is being merged out of existence.  Jay Murray the CEO of Mid-Atlantic our corporate was there and told me they were asked to merge Constitution but it made no sense to them.  Several corporates are pressing to merge in Constitution.  Like we’ve said before, put two dogs together and all you get is a kennel.  They acknowledged that credit risk was the problem at the corporates and incredibly have prohibited private label CMO’s at corporates.  The portfolio of a corporate can only extend from two years to two and a quarter years with a 50% slowdown in prepayments.  Basically NCUA is putting the corporates out of the investment business.  Corporates can do investments for credit unions through CUSO brokerage services because the SEC will monitor them.  (As though the SEC is some great regulator!)  The legacy assets will be used to collateralize NCUA notes that are guaranteed by the Treasury.  The ticker symbol for these notes is NGN.  They will be issued to market over the next four to five months.  There will be 30 to 35 billion of notes with 45 to 50 billion of legacy assets backing them.  The securities have a hard final of 10 years.  In some instances the hard final is shorter.  The first issue was brought to market last week in a floating rate of 3.3 billion and a fixed rate of 500 billion.  The floating rate came at a yield of labor plus 45.  The fixed piece was at the swaps rate plus 100 with a yield of around 1.8 to 1.9%.  In two months the management teams of the four bridge corporates will put proposals on the table for what to do with them and the members will have to decide.  If I was a betting man I’d bet on disposal of the bridge corporates.  NCUA will have a new lead examiner at each  of the 22 surviving corporate each year.  If they do not have expertise on staff they will bring it in.

The overall mood of the meeting was muted and attendance was light.  I think everyone is just worn out over this whole issue.  Like I said I was pretty impressed with the work they’ve done.  But I think credit unions will continue to pay for this mess long after I retire to my primary job as Irina’s Papa.  What fun times we live in,  Evan

Mini Iris in my Meadow

Hi Everyone,

This beautiful miniature iris bloomed in the meadow I'm building in my front yard.  Last year I planted plants and grasses and this year I'm pleasantly surprised by the result.  The path rush is a particularly beautiful grass that has come out very thick this year.  It is just starting to bloom and if it produces much seed I will use it to fill in empty spots.  Though I'm amazed at how the empty spots are naturally filling in.

The Case of the Missing Laptop and Poor Dell Service

Dear Dell Computer,

Well over a month ago I ordered a laptop from Dell.  The delivery has been delayed four times.  What no one at Dell mentioned is the reason for the delay.  I asked but no one could tell me.  We had a special cover ordered and that cover was on back order.  Nicole Leidlein in your call center did a very good job of tracking down the reason.  She said the cover had been expedited but did not say if that would mean we'll get our laptop any earlier.  Why didn't anyone explain why our order was delayed?  If they would have we would have changed our order to get a top that was in stock and we would probably have our laptop by now.  As it stands I still don't know if we'll ever see our laptop.  I'm relating this story because it shows that something has changed at Dell.  I have bought many computers in the past from Dell and all were delivered before the expected date.  Now for a reason that was totally changeable and preventable if there had been good customer service we still don't have a laptop.  This is a case of poor customer service and I had to relate the story because we are frustrated and on the receiving end.  Call me if you want, I'll be here till 4:00 this afternoon.  202-482-1082  Evan

A Very Fun Event on March 6th

Hi Everyone,

March 8th is International Women's Day.  In celebration of this wonderful event on March 6th the WEAR A HAT Theater is having a spring spectacular.  See the details below.  Hope we see you at the Russian Cultural Center next weekend!

In cooperation with the American Association of Russian
Language, Culture and Education (AARCE)
and Russian Cultural Centre

When: Saturday March 6, 2010 4:00 PM              
Where: Russian Cultural Centre

International Women's Day celebration,
together with Theater WEAR a HAT
with models both young and old

Many well known women of the Russian community

will participate in the show!
     
A world opera star Timur Abdikeyev from famous

Mariinsky Theater will make
an exclusive performance!

Agenda:
4:00 - 4:30 Registration and cocktails
4:30 - 5:30 Musical hats show
5:30 - 6:30 Traditional Russian appetizers
                  and caviar, white and red wine, beverages
6:00 - 7:30 Prize drawing, Dessert, Flowers given to all women attending!

              
Entrance: $ 15 per person, $ 25 for couple,
                $ 10 for seniors, free for kids under 17.

Space is limited - register early!
To make your reservation - send your
name and phone number to
dludmila@mail.ru or ludihettick@yahoo.com
and pay at the door.

More about event and buy tickets on the Internet:

http://www.russiandc.com/ev/event.html?id=2873&lng=en

For questions and inquiries, please call:
(202) 379-6327, (703) 677-5005.

For more info on theater WEAR a HAT and
Ludi Hettick, Art director please go to:
http://www.russiandc.com/news.html?id=2010

Location: 1825 Phelps Place NW, Washington, DC 20008
(half a mile from Metro station Dupont Circle,
Entrance North to Connecticut Ave NW,
turn left at Bancroft Pl NW, turn right at Phelps Pl NW).
Street parking is available.