DALLAS – Southwest Corporate FCU said yesterday it wrote off $24.7 million of unsecured debt it held in Lehman Brothers Holdings, the second corporate in as many weeks to take a charge related to the bankrupt brokerage.
Melissa Wardell, chief financial officer for the $10 billion corporate, said Southwest had $49.5 million in senior Lehman debt and recorded a 50% other-than-temporary impairment charge in September, after the venerable brokerage filed for Chapter 11 bankruptcy. Southwest could take further charges depending on how the bankruptcy plays out.
The move comes a week after Members United Corporate FCU reported a $43 million loss for September, due mostly to Lehman Brothers debt.
Southwest’s Wardell noted that even though the Lehman-related losses reduced net income for the first three quarters from $26 million last year, earnings were still strong for the first nine months. "It’s important to note that year-to-date earnings were $20.1 million after taking the charge," she told The Credit Union Journal yesterday. She also noted that return-on-assets was 0.31%, strong for a corporate.
The Southwest CFO stressed that they expect year-end capital ratio to exceed 6.5% and year-end retained earnings ratio to exceed 3%, up from 5.57% and 2.50%, respectively, last year.
Southwest’s mortgage securities also continued to deteriorate last month, with unrealized losses increasing to almost $1.1 billion. Wardell said Southwest plans to continue to hold the securities, in hopes of a rebound in the market.
Southwest is not planning to sell securities into the Treasury’s Troubled Asset Recovery Program, but hopes the launch of the program will help rebuild an active market for its securities, said Wardell. "We believe that continuing to hold our securities is better than selling them at distressed prices," she stated.
