Two largest wholesale credit unions seized

From the Wall Street Journal:

In the latest dramatic move by federal authorities to prop up the nation’s banking system, regulators late Friday seized control of the two largest wholesale credit unions in the U.S. after finding that their losses on mortgage-related securities were even larger than previously thought.

U.S. Central Corporate Federal Credit Union and Western Corporate Federal Credit Union, which have a total $57 billion in assets, were taken into conservatorship by federal regulators. Under conservatorship, the government will continue to run the institutions.

Michael E. Fryzel, chairman of the National Credit Union Administration, the industry’s federal regulator, said the seizure was necessary to maintain the integrity of the credit union system and the already-strained insurance fund that backs up deposits in thousands of retail credit unions.

The affected institutions don’t serve the general public. Instead, they provide critical financing, check-clearing and other tasks for the retail institutions. These wholesale credit unions, known in industry parlance as corporate credit unions, are owned by their retail credit-union members.

U.S. Central and Western Corporate have been grappling for more than a year with large paper losses on a slew of assets, mostly mortgage-related. In January, regulators moved to prop up U.S. Central with a $1 billion infusion after it took big writedowns on some of the securities.

Mr. Fryzel said regulators moved after becoming convinced that the two institutions were underestimating the true scope of their losses. “With us in control we’d get honest numbers,” he said. Mr. Fryzel said regulators plan to replace top management at both institutions.

Using the Geithner logic, we should be buying shares in these Credit Unions at vastly inflated prices, leaving the management in place, and pretending that these are two perfectly functioning credit intermediaries.

Curious, isn’t it — that somehow the “government” is perfectly able to assume management of these 2 credit unions and 17 other banks, but somehow we can’t possibly do the same for Citi.

As for BofA, I suspect there were some dealings done whereby the Fed pressured BofA to buy Countrywide and Merrill and basically to cover up the horrendous nature of that mistake. They are now too politically inhibited to do an FDIC treatment on them.

Contrast that episode with WaMu and JPMorgan Chase.

Oh, and the FDIC seized a bank as well – FirstCity Bank of Georgia. That makes 18 banks this year.

UPDATE 610 MT: The FDIC has seized two more institutions. This makes five seized today.

Banks in Colorado, Georgia and Kansas were closed by regulators, bringing the number of bank failures this year to 20, while the National Credit Union Administration Board seized corporate credit unions in California and Kansas that have a combined $57 billion in assets. Corporate credit unions are chartered to act as a sort of clearinghouse for the credit unions that serve consumers.

Sources
Regulators Seize Control of Two Largest Corporate Credit Unions – WSJ
Georgia’s FirstCity Bank becomes 18th failure of 2009 – Market Watch
Calamitous day sees banks, credit unions seized – Market Watch