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California credit unions say jobs a big concern

By Gina Keating
/ Source: Reuters

By Gina Keating

Rising unemployment and potential defaults worry California's retail credit unions more than the U.S. government's seizure last week of a corporate credit union that serves the region, chiefs of two retail credit unions said on Tuesday.

Ron Berry, chief executive of Pasadena Federal Credit Union (PFCU), and Darren Williams, CEO of Wescom Credit Union in Pasadena, said they see little fallout for their members from the seizure of Western Corporate (WesCorp) Federal Credit Union of San Dimas, an ominous turn for a sector seen as insulated from U.S. banks' risky behavior.

Corporate credit unions are the retail credit union's credit union, providing services including lending and check and payment clearance services. If problems had been left unchecked at WesCorp and U.S. Central Federal Credit Union in Lenexa, Kansas, which was also seized on Friday, credit unions across the country could have seen their access to funds disrupted.

Berry and Williams blamed accounting rules, which required the two credit unions to take big charges on mortgage backed securities, for creating artificially large losses.

"I would say if anything (they were valued) too conservatively," Berry said.

"They may still prove to be very good investments," said Williams, whose credit union is a WesCorp shareholder. "It's the accounting treatment that all institutions are required to follow that is causing the problems here."

Berry said he was "not at all" worried that WesCorp or the nation's other 26 corporate credit unions could deteriorate further, but rising joblessness among PFCU members, many with credit cards and loans, "is going to hurt the most."

"The industry is very well capitalized and doesn't take the risk that the banking industry had taken and didn't have the leverage that the investment industry had," Berry said. "My biggest concern is that we get our members back to work."

Maureen Young, an attorney who advises banking clients, said the seizures of those credit unions still could have "a ripple effect" on the industry for a couple of years.

"It depends on how the economy does," said Young, of Bingham McCutchen in San Francisco. "I would be looking for ... more losses among the corporate credit unions and additional regulatory intervention ... and default rates for consumers on their credit cards and loans."

PFCU, with $125 million in assets, uses only WesCorp's credit card and check clearing services and has been assured "it will continue to be business as usual," Berry said.

Wescom, one of California's largest retail credit unions with more than $3 billion in assets, invests its overnight funds at WesCorp and believes the conservatorship will "have no immediate impact on us," Williams said.

But credit union regulators' plan to tap the credit union insurance fund to stabilize the corporate credit unions may come with a price tag for nearly 8,000 U.S. credit unions, that are expected to foot those costs, he said.

"It won't have an effect on liquidity, so it won't affect lending," Williams said.

"It is an expense that we weren't anticipating, and it does have to be covered, but I don't see it as being a dramatic issue," he said