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Cal State 9 Credit Union Placed into NCUA Conservatorship

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It was announced late Friday that Cal State 9 Credit Union would be placed into conservatorship under the National Credit Union Administration (NCUA). Here's the official announcement (pdf) from Cal State 9 and the NCUA.

The first conservatorship that I reported on was in February when Huron River Area Credit Union in Michigan was placed into conservatorship. As I described it, a conservatorship means NCUA will run the credit union in an attempt to restore its safety and soundness and return it to members. Possible outcomes include a merger with a stronger credit union, the soundness issues may be resolved by the NCUA management and the credit union would be handed back to the members, or if there are problems too severe to resolve, it could be liquidated.

Members who have over the NCUA insured limits shouldn't lose anything. In the Cal State 9 announcement it was stated that "they are working with any individual members whose deposit accounts may exceed insured amounts to maximize coverage and minimize risk." It would definitely be wise for those members with over the NCUA insured limits to move that money out of the credit union or at the very least make sure the accounts are structured so that all deposits are under the limit. As in the case of the Huron River Area Credit Union, the situation has worsen under conservatorship as this Ann Arbor News October article described. So there's a chance the conservatorship may end with liquidation.

Regarding Cal State 9, this San Francisco Chronicle article received a quote from a California official who stated that the action was "related to the credit union's defaults on mortgages." Loan losses in the third quarter ending in September were $54.5 million, up from $17.5 million in the previous quarter. You can view more of the financials of Cal State 9 from this NCUA page.

When I reported on Cal State 9 last month, it had a 2 out of 5 star rating at Bankrate.com. I think this was based on 3/31/07 data. The latest rating based on 6/30/07 data is 1 out of 5 stars. BauerFinancial currently gives it a rating of zero based on 6/30/07 data.

Through much of last summer, Cal State 9 had been offering a special 6% 7-month CD. This rate went down to 5.50% APY last month.

Thanks to the readers who notified me of this news.

  Tags: California

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Comments
5 Comments.
Comment #1 by Anonymous posted on
Anonymous
The interim CEO appears to be from Wescom Credit Union, a successful CU in southern CA.

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Comment #2 by Anonymous posted on
Anonymous
I placed $100K in the 6% 7mo CD when they were advertising the special. I noticed that I have received the interest and now the account is around $101K+. If by chance they do go under, would I be able to gain the interest that has occurred? You said, that we should rearrange our accounts to not go over the limit of insurance. How would we do this with a CD? I never immagined that I might be caught in a CU failure.

1
Comment #3 by Mario (anonymous) posted on
Mario
You rearrange your account by having individual and joint accounts with others, they are all separately insured.

My understanding is that principal and interest are guaranteed, however only up to a total $100k.

In practice, a lot of depositors usually seem to be able to get much of their deposits in excess of $100k back, but it is not guaranteed.

1
Comment #4 by Banking Guy (anonymous) posted on
Banking Guy
If you have the CD with over $100K and if it's not a joint account, you could look into adding at least two qualified beneficiaries. It looks like the credit union will work with you on this. For more info on extending your NCUA coverage, please refer to this post.

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Comment #5 by Anonymous posted on
Anonymous
I have two IRA's in Cal State 9 and although I have less than the coverage 250K I called to see how things are being handled.

A rep from NCUA called me back immediately, and reassured me that leaving the funds there would be the best. As they are 7 month CD's due in March 08 he said " they would not know by then what course they will take". They will return the CU to the original handlers, merge with another CU, or dissolve the CU.

I felt comfortable with his explaination and since I am getting a 6% return I will hold on till March.

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