Arrowhead CEO Talks TARP in Washington D.C.

Larry Sharp meets with lawmakers to discuss the competitive inequities resulting from banks being the sole recipients of the TARP dollars.

WASHINGTON D.C. -- Larry Sharp, president and CEO of Arrowhead Credit Union, met in Washington D.C. today with the Treasury Department and Congressional members to discuss the competitive inequities being created by the uneven application of the $700 billion Troubled Asset Relief Program (TARP), which has excluded credit unions to date.

Joined by fellow California credit union leaders, Sharp’s discussions focused on the consequences of providing TARP funding only to banks. The meetings occurred on the same day that Arrowhead Credit Union announced it would be proactively making across-the-board cost-cutting measures as a responsible means of maintaining a well-capitalized net worth ratio, currently at 9.32 percent. Federal regulators designate a credit union as well capitalized – the highest ranking possible – if its net worth ratio is 7 percent or above.

“While we are deeply disappointed about having to make cuts, Arrowhead Credit Union is acting prudently and proactively to reduce our costs so that we continue to remain strong, well-capitalized and well ahead of the financial situation that is gripping our nation,” Sharp said.

“It’s upsetting that while we are wisely reducing our costs, banks, including healthy ones, are collecting billions in taxpayer dollars from TARP to beef-up their balance sheets instead of stimulating the economy,” Sharp said.

Sharp explained that TARP was intended to get liquidity into the marketplace, especially in hard-hit areas like the Inland Empire where foreclosure and unemployment rates are high. But TARP’s application is giving banks an unfair competitive advantage over credit unions, specifically when it comes to liquidity and capitalization ratios.

Sharp said credit unions were included in the original TARP language, but so far, more than 280 healthy and ailing banks have shared in $277 billion supplied by TARP while credit unions have not received any TARP funds.

“It’s mind-boggling that TARP is overlooking non-profit credit unions like Arrowhead, which, as a central element of our nation’s financial network, supply small businesses and others with crucial capital,” Sharp said. “The banks won’t even reveal to the public how they have been using their TARP funding.”

Sharp said non-profit credit unions have a long history of accountability and transparency. Providing credit unions with a share of the TARP funds will help get money flowing again to local communities through loans to small businesses and others – the very segments of the community that banks are ignoring. Providing credit unions with a share of the TARP funds will level the playing field between banks and credit unions, he said.

House Financial Services Chairman Barney Frank, D-Mass., has criticized the Treasury Department’s use of the TARP funds as damaging to credit unions and wrote a letter just two weeks ago to Ben Bernanke, chairman of the Federal Reserve, about the matter.

 “I am concerned that credit unions will be particularly hurt by Secretary Paulson’s misguided decision not to use the TARP to buy troubled assets,” Frank wrote.

As a consequence of these inequities, Arrowhead Credit Union is reducing its 2009 operating budget by 10 percent to ensure it maintains its well capitalized rating through 2009 and beyond.
The credit union is closing three branches in grocery stores in Chino Hills, Hemet, and San Jacinto, effective Feb 7th.  A fourth branch in Murrieta also is closing the same day. ATMs at those locations will remain open.  Sharp noted that members in those communities will also be able to conduct financial transactions at Arrowhead’s partner credit unions and can access Arrowhead’s popular online system.

As a result of the closures, Arrowhead is reducing its 558-person workforce by 29 positions, Sharp said. The credit union has identified 10 unfilled positions in-house where some of those employees may be transferred.

As chief executive officer, Sharp is taking a 17 percent pay cut as part of the top-to-bottom cost-cutting effort. The credit union also is postponing its plans for adding new branches and slashing its budgets for travel, education and community development.

“Overall, we are cutting our costs by more than 10 percent for 2009. These reductions will leave Arrowhead Credit Union strong and well positioned once the economy turns around so that we can continue to provide outstanding service to our more than 162,000 members across the Inland Empire,” Sharp said.