Puerto Rico’s fiscal board approves plan for Cossec, lifeline for credit unions
FAJARDO, Puerto Rico – Puerto Rico’s financial control board certified Friday, with amendments, a fiscal plan for the the Cooperatives Supervision & Insurance Corp. (Cossec), the entity in charge of overseeing local credit unions.
From the outset, the fiscal plan acknowledges the risks coops face amid the commonwealth’s fiscal crisis, as “there is a high level of concentration in Puerto Rico’s debt among cooperatives that could compromise the solvency of some.”
As part of the agenda of the ninth meeting of the governing body, it certified, with amendments, the fiscal plan that originally had a Feb. 21 delivery date.
Dubbed Coop-Self, Cossec’s fiscal plan includes a capital injection program that would see roughly $533 million into the system to help address possible losses resulting from the restructuring of Puerto Rico’s debt. The amount would come from $383 million in capital and $155 million from the sale of certain loan portfolios, according to the document.
Nevertheless, one of the amendments call for a more “extensive” program, while requiring additional details on its implementation, including timetables and resources needed.
Cossec assures the measure will help maintain confidence in the local cooperative system. The program would be run by a task force for which there is already an initial agreement on how it will be composed to carry out its function.
Government officials further assured that after running several stress tests, the island’s credit unions are “relatively” ready to face the effects of the commonwealth’s debt-restructuring process. They noted that four credit unions are experiencing liquidity problems, but said options are being explored to take care of these, including a possible takeover by a large co-op.
Furthermore, the plan also calls for the replacement of Cossec’s board of directors, with a “committee” that will take over the entity during the life of the fiscal plan. Financial Advisory & Fiscal Agency Authority (Fafaa) director, Gerardo Portela, explained that the committee will comprise the commissioners of cooperative development and financial institutions, as well as himself as director of Fafaa.
One of the amendments to Cossec’s fiscal plan seeks to further reform the entity’s governance, as well as other changes in local legislation related to this sector. For instance, the board called for legislation to allow the sale of credit unions assets to other non-coop entities, if Cossec determines that a liquidation is necessary. It also required legislation to allow credit unions to issue preferred shares.
Another of the amendments requested by the governing entity is geared toward ensuring that credit unions are supervised by some entity with expertise in this area, either by joining federal chapters, oversight by the National Credit Union Administration (NCUA) or the Office of the Commissioner of Financial Institutions. The board also required Cossec to seek external assistance, including from federal agencies and advisors, to improve the entity’s practices and address the challenges related to the island’s fiscal crisis.
The 116 cooperatives on the island–serving more than one million customers–have invested some $965 million in Puerto Rico bonds, or 65 percent of their total investments totaling $1.5 billion. Most correspond to Government Development Bank (GDB) notes, which are worth 84 percent less than their original, or par, value.
In total, Puerto Rico bonds held by cooperatives are list at nearly 50% of their par value, according to the document.
Although Cossec recognizes that accounting rules allow these institutions to lessen the long-term impact of this reality on their books, a restructuring of the public debt would affect their cash flow anyway.
During the meeting, government representatives admitted that some four cooperatives face serious liquidity problems and that the possibility of larger cooperatives taking over these institutions is being studied.
Regarding the financial situation of Cossec as an entity, the plan states it has not issued public debt, does not depend on the central government, has no deficit and can pay for its expenses. In addition to regulating and fostering cooperatives in Puerto Rico, Cossec insures deposits in these institutions up to a maximum of $250,000.