The Life & Death of WesCorp

SAN DIMAS, Calif. — Dwight Johnston was stepping up to make a presentation at a WesCorp conference in 2008 when the jokes began again.

"Have you bought a house yet, Dwight," kidded WesCorp FCU CEO Bob Siravo as he introduced Johnston to the crowd of 400 CU executives and board members at the Credit Union Outlook Conference at the Wynn Las Vegas hotel.

Credit union folks in the big ballroom laughed, which is what Siravo expected from his kidding.

Johnston's housing situation was something of a running joke inside WesCorp, which was flying high at the time as the country's second largest corporate credit union. Its chief economist, Johnston, had put his money where his contrarian mouth was, selling his Southern California home in 2004 in the belief the local market and the country were facing a significant housing bubble that was headed toward an inevitable burst.

Johnston had regularly advised the WesCorp management team and board of his position on the tentative future of the housing market. The advice was anything but embraced. WesCorp was betting big on America's surging housing market and pouring hundreds of millions of dollars of its member credit unions' money into mortgage-backed investments as the U.S. raced headlong into a full-blown housing bubble.

WesCorp, like a number of other large corporates, would keep on betting on the "recession-proof" U.S. housing market right up until the end, and if its chief economist wanted to rent, well, that was his mistake. Real estate is the safest investment in the U.S., after all.

"A lot of people at WesCorp, in a nice way, sort of took my move as a joke," said Johnston, who, after leaving WesCorp, operated his own firm before recently being named the chief economist at California and Nevada Credit Union Leagues. "They said, 'There's crazy Dwight, selling his house,' as well as, 'You know economists, they're hardly ever right.'"

The Birth of the California Corporate

Western Corporate Federal Credit Union was born quietly in 1969 as California Central Federal Credit Union to provide liquidity to credit unions in California. In 1975 it expanded its charter to serve all CUs in NCUA's then Region VI, which included the western United States. A year later it changed its name to Western Corporate FCU, or WesCorp as it was better known.

Over the next 42 years it would come to reflect the Golden State itself, growing into the biggest and brashest of the corporate credit unions (other than the corporates' corporate, U.S. Central in Kansas). It offered rates and services that were the envy of many corporates, and many natural-person CUs pressured their own corporates to match its offerings, or else.

WesCorp would eventually move into an impressive corporate campus and lay claim to some $32-billion in assets. And then, much more quickly than all but a few might have ever projected, it began reporting quarter after quarter of potential losses, then partial losses, and finally write-offs to the tune of billions of dollars. On March 20, 2009, its life ended.

The once industry-leading giant became emblematic of bad bets, poor management and almost meaningless regulatory oversight-although NCUA board minutes reviewed by Credit Union Journal indicate some at the agency believe WesCorp was selectively "filtering" its numbers to minimize its losses and potential losses.

Its remnants would be reincorporated as Western Bridge Corporate Credit Union, but it would be years before anyone knew what was on the other side of that bridge. Despite extraordinary efforts to resurrect it under another name, most credit unions refused to sign on. Finally, what was left was picked from the scrap heap by another corporate, and on July 6, 2012, WesCorp's offices officially closed.

In this issue, Credit Union Journal offers a deeper look at the life and death of Western Corporate Federal Credit Union.

Living In A 'NINJA' Market

Johnston and his wife bought a home in Upland, Calif., in 1998, when the California housing market was fairly stable. Once the new century arrived, the housing market in 2001 began to explode, as it did in all the so-called "sand states," such as Arizona, Nevada and Florida. By 2004 the Johnstons' home had doubled in value. The country was caught up in a housing euphoria not seen in U.S. history. In some markets buyers were "flipping" a home on the same day it was bought, and turning a profit. Proof of income on loan contracts seemed almost a quaint, if meaningless, notion. Suddenly, "subprime" was as good as prime, and only a few naysayers were asking pesky questions such as how such a market trend could be sustained.

"I looked around at all the home prices skyrocketing," recalled Johnston. "I saw the crazy news stories, like a couple-a maid and a bus driver-buying a $700,000 home. I knew about the 'NINJA' loans that at the time were joked about-no income, no job, no assets."

Most of all, Johnston spotted signs in the economy that he argued pointed clearly to obvious signals that the rate of appreciation in housing could not continue. "I said to myself, 'This is nuts. I am getting out now and banking the money.'"

Raining On The Parade

While at WesCorp, Johnston, well respected nationally, authored a daily economics blog closely followed by credit unions in which he often included his housing market concerns. Those same issues were raised in the packets distributed to members of WesCorp's board of directors, itself made up primarily of credit union CEOs. Johnston reported directly to Chief Investment Officer Bob Burrell, who at the time was widely regarded by many inside WesCorp as the "investment guru."

Burrell had joined WesCorp in 1997 and would remain with the corporate until 2010.

"Management was well aware the housing bust was possible," said Johnston. "But from 2004 through 2007, no one inside WesCorp really wanted to hear about it."