The idea behind such a transaction is to continue to protect the assets of Cal State 9's members and to maintain the company's financial stability, according to the National Credit Union Administration. That group is managing Cal State 9 through the conservatorship, Melinda Love, a regional director with the credit union administration, stated in a letter posted on the Cal State 9 Web site.
"This week, NCUA representatives came to a decision to pursue the combination of Cal State 9 with another credit union," Love stated in her letter to the credit union's members.
Concord-based Cal State 9 would be combined with another credit union through a transaction that would enable the buyer to purchase some or all of Cal State 9's assets and assume some or all of the company's liabilities, including insured deposits.
"This transaction, known as a 'purchase and assumption,' represents the most financially sound decision and is in the best interest of Cal State 9's membership," Long wrote in her letter.
Despite Cal State 9's troubles, the state-ordered conservatorship has enabled the credit union to keep its doors open and to protect the assets of its members.
Still, the backdrop for any deal is the dreadful financial condition of Cal State 9. Losses at the credit union have accelerated dramatically.
During all of 2007, the credit union lost $61.6 million. In September, the credit union's losses totaled $45.9 million over the first nine months of the year. In June, Cal State 9's losses totaled $9.1 million. During 2006, Cal State 9 posted a profit of $9.5 million.
Cal State 9's woes were fueled by the credit union's venture into home equity loans. When the mortgage meltdown shredded the economy, Cal State 9 was saddled with a rising number of delinquent loans.
By year's end, Cal State 9 was burdened by nearly $68 million in real estate loans that were delinquent by more than one month, according to a regular quarterly report the credit union files.
The National Credit Union Administration said it believes a transaction could be completed by early this summer.
Discussions have begun with credit unions that could undertake a deal, said John McKechnie III, public and congressional affairs director with the credit union administration. The group's officials did not identify the possible candidates.
"These situations are rare," McKechnie said. "The National Credit Union Administration would manage whatever assets and whatever liabilities would remain" once the deal was concluded.
The nature and amount of the residual assets or liabilities would vary on a case-by-case basis.
"Our agency's first interest is to preserve all of the assets of the members," McKechnie said.
Credit unions pay a deposit and insurance assessment into the National Credit Union Share Insurance Fund, which is like the FDIC fund to insure bank and thrift deposits. That fund provides the financial support to allow the credit union administration to handle assets and liabilities as necessary.
Cal State 9 is the second East Bay credit union in recent months to stumble into a quagmire of housing-related mortgage failures and red ink.
Pleasanton-based Sterlent Credit Union is attempting to combat a loss of $4.8 million during 2007 and millions of dollars in delinquent mortgages. That company continues to operate as usual and is protecting its members' assets while it attempts to stabilize its operations.
That same message of assurance is being delivered to Cal State 9 customers.
"We want Cal State 9 members to know that their funds are insured, the doors are open and come on in," McKechnie said.
George Avalos covers jobs, economic development, commercial real estate, finance and petroleum. Reach him at 925-977-8477 or firstname.lastname@example.org