The Municipal Credit Union Saga Stays Dark

In three prior commentaries I have described NCUA’s conservatorship of Municipal Credit Union.

• https://chipfilson.com/2019/12/where-is-the-transparency-for-ncuas-actions-at-municipal-credit-union/
• https://chipfilson.com/2020/02/municipal-credit-union-nyc-reports-30-million-net-income-gain-in-4th-quarter/
• https://chipfilson.com/2020/08/what-do-municipal-credit-union-and-the-u-s-postal-service-have-in-common/

Because of this credit union’s 104-year history and its vital role in the city, I contacted the credit union to update its recovery following the release of the September call report.

NCUA’s director of external affairs sent the following to my request:

November 30, 2020 at 10:49 AM

Hello, Chip. We received the inquiry that you sent to Municipal Credit Union requesting to speak to someone on the credit union’s progress. Please note that notwithstanding key personnel announcements, we do not comment on our efforts or conditions related to conserved credit unions.

Regards,
Joseph B. Adamoli
Office of External Affairs and Communications

My reply:

December 1, 2020

I understand your email responds to the inquiry I sent MCU to update their progress in conservatorship.

I am surprised your office would miss an opportunity to demonstrate NCUA’s leadership by ducking simple questions about running such a large and important $3.7 billion credit union serving New York and its 600, 000 members.

For example, the members and credit union system would be interested in:

• • • • Why has the Agency chosen four different chief executives in the last two years, Kyle Markland being the most recent? Who makes these decisions? What marching orders are they given?
      • Under agency control, why has the credit union reported such wildly fluctuating results, for example a loss of over $120 million in one quarter and an extraordinary ROA in the following two quarters? (https://chipfilson.com/2020/02/municipal-credit-union-nyc-reports-30-million-net-income-gain-in-4th-quarter/)
      • Why have the financial concerns of the 600,000 members not merited a statement about the forward conditions they will have to deal with or better yet, some announcement of confidence about the future?

The credit union’s quarterly call reports are public. Its financial performance is open for anyone to review and comment on. Are the numbers a good sign for members or not?

Given NCUA’s track record for conservatorships, does the turnover of executive leadership signal a lack of momentum for the institution, staff, and its financial plan?

Your policy seems positioned to give the NCUA a blackout period to simply keep the institution out of the members’ sightlines in hope the NCUA can package the credit union in a back-room handoff to a convenient suitor versus working to hand the credit union back to its community.

I urge you to manage this differently. Transparency creates trust. Silence undermines member and public confidence just when regulatory leadership is most needed.

Chip Filson

Why MCU’s Situation Matters

MCU’s September 30, 2020 call report numbers are in many respects very positive.

The credit union grew shares by 27% to $3.5 billion in the past year while adding 27,000 members to total 600,000. Its ROA is 1.18% and a net worth of 4.66%. Delinquency remains very stable with the allowance account funded over 200% of total delinquencies. Its balance sheet holds over $1.7 billion in investments including $800 million in cash.

Chartered in 1916, the cooperative has served five generations of New Yorkers through thick and thin. It is a vital part of the city and state’s credit union system.

Importantly, it is a highly visible example of the broader narrative of the cooperative role for members in times of crisis. Local response to circumstances is the hallmark of a credit union relationship.

NCUA Puts Itself In Charge

When NCUA manages a credit union via conservatorship, it has a heightened responsibility to all the member-owners. To keep the confidence of the credit union system, open communication is necessary.

All NCUA employees are public servants. They are paid entirely from credit union funds. Board members and their politically appointed advisors have a singular responsibility for the wise use of authority and industry resources.

This is especially true in difficult times. For if government is not effective when its role is primary, then the entire industry suffers.

Transparency Essential for Trust

Public dialogue is how trust is created in NCUA oversight. Kyle Markland’s appointment will be the MCU’s fourth chief executive in the past two years, all selected by regulators. In previous commentaries, I described the importance of this selection as follows:

The key success factor (in a conservatorship) is finding and supporting the right turnaround leader. The challenge is simple: Any jackass can kick down a barn, but it takes a carpenter to build one.

Will NCUA appoint a jackass or a carpenter? Someone to play caretaker until the agency elects a merger partner to resolve a leadership transition? Certainly, there will be vultures a plenty looking to take the “problem” off NCUA’s hands.

The financial numbers reported in conservatorship have fluctuated widely. A loss in one quarter of over $120 million to an extraordinary ROA two quarters later. Members have been kept in the dark about the credit union’s plans.

Decisions with long term consequences are being done in a vacuum. It is not clear who is calling the shots and who is willing to take responsibility.

Where is the Problem?

The Agency’s professional competence is on the line in its takeover of MCU. Many ask how this situation could have occurred if NCUA and state regulators had conducted adequate oversight to begin with.

Is the real problem the credit union or a multi-year failure of examination and supervision?

NCUA’s record in large conservatorships is not encouraging. In the takeover and liquidation of five corporate credit unions in 2010, the Agency’s forecasted costs to credit unions were in error by over $20 billion. In these forced liquidations there is a $6 billion surplus even after NCUA spent almost $4 billion additional expenses overseeing the closures.

Moreover, without timely information, it is hard for the credit union system, vendor partners and employer sponsors to provide support to MCU.

The Need for Leadership

Who at NCUA is willing to take responsibility for informing the credit union community about this critically important situation? It is a time for leadership. One leader stepping up could inspire others to contribute to MCU’s return to its member-owners.