Pleasanton, California-based Sterlent Credit Union's financial woes have been reported in local community newspapers. George Avalos wrote a May 13 article in the Contra Costa Times regarding Sterlent's woes caused by high delinquency rates on home equity lines of credit. The article quoted Sterlent CEO Sue Raines as stating, "We are in the process of working with a potential partner that will provide positive long-term solutions to these issues," although no specifics were provided.
Mr. Avalos' article, which also was published in sister publication Inside Bay Area, was rather low-key in details compared to the May 6 story in the Credit Union Times, in which writer Carol Anne Burger unambiguously stated "Sterlent Credit Union...... is insolvent. Sterlent’s net worth is now -0.29%. With delinquency at 3.76% and charge-offs for the quarter ending March 31 of $3.8 million and a return on assets of -22.13% and a net income loss for the quarter of $5.5 million, the CU is either facing a conservatorship, liquidation or forced merger."
California's Department of Financial Institutions, which is the regulator of state-chartered Sterlent, must be facing some hard questions from NCUA about Sterlent's business practices and the effectiveness of regulatory supervision.
This writer is also sincerely concerned whether NCUA has sufficient skilled manpower and leadership resources to effectively monitor safety-and-soundness problems at SIF-insured credit unions. Does the financial debacle at Sterlent, as well as previous problems at Cal State 9, Norlarco and Huron Area credit unions, suggest that NCUA needs more resources from Congress to adequately conduct safety-and-soundness oversight and examinations of Share Insurance Fund member credit unions? How can NCUA do a more effective job of due diligence as Share Insurance Fund administrator in detecting financial performance deficiencies before they balloon to the point of insolvency?
Credit union leaders don't want NCUA's SIF to be merged by Congress into the FDIC, so I think this is a topic too important to "sweep under the rug". After all, Sterlent's high-risk residential lending program was developed over a period of years, not overnight, and California's DFI and NCUA were both disappointingly ineffective in monitoring Sterlent. While the regulator and insurer probably weren't "asleep", why did they fail to detect these serious safety-and-soundness issues for so long?
Ron Bensley, Jr.
Posted by firstent
at 12:01 AM PDT
Updated: Wednesday, 14 May 2008 9:03 AM PDT
