Two big credit unions placed in conservatorship

Federal regulators took over two big credit unions, which could be a sign of growing problems in that segment of the financial industry.

Regulators put U.S. Central Corporate Federal Credit Union and Western Corporate Federal Credit Union into conservatorship, saying the actions were needed to resolve balance sheet issues and preserve the stability of the broader credit union system.

The two credit unions have $57 billion in assets between them. They provide financing and investment services to retail credit unions, the cooperative financial institutions owned by their depositors.

The National Credit Union Administration said the seizure of U.S. Central and Western Corporate would have no direct impact on the 90 million Americans who belong to credit unions. The government agency  emphasized that the nation's retail credit unions remain strong, with a net worth exceeding 10 percent of assets and increasing deposits, membership and loan volumes.

U.S. Central, based in Lenexa, Kan., has about $34 billion in assets, including money invested by retail credit unions. The NCUA pumped $1 billion in new capital into U.S. Central in January in an effort to shore up its finances and bolster customer confidence.

Western Corporate, based in San Dimas, Calif., has $23 billion in assets. Regulators plan to keep both credit unions in operation, but will replace management and make other changes.

The NCUA said it had performed a detailed analysis and stress test of the mortgage- and asset-backed securities held by all corporate credit unions. The review found an unacceptably high concentration of risk in just two places - U.S. Central and Western Corporate.

"Securities held by U.S. Central and WesCorp deteriorated further since late January 2009, contributing to diminished liquidity and payment system capacities, as well as further loss of confidence by member credit unions and other stakeholders,'' the agency said in a press release on the seizure.

Further analysis of the mortgage- and asset-backed securities held by the credit unions led the NCUA to boost the reserves for losses in the industry's deposit insurance fund by $1.2 billion, to $5.9 billion.