WALLINGFORD, Conn.– Steep losses last year, which have continued through 2009, have caused the independent auditor for Constitution Corporate FCU to question the ongoing viability of the $1.3 billion corporate credit union.
Constitution is one of eight corporate credit unions, including U.S. Central FCU and WesCorp FCU which were taken over by NCUA six months ago, that hold large portfolios of underwater mortgage-backed securities.
In its audited financials, PricewaterhouseCoopers LLP said Constitution has suffered recurring losses from operations, has significant unrealized losses in its investment portfolio, has a significant members’ equity deficit and has a regulatory capital deficiency that raises substantial doubt about its ability to continue as a going concern.
"As a result of Constitution’s financial condition, the NCUA is continually monitoring the liquidity, earnings and capital adequacy of Constitution. Based on their assessment of Constitution’s ability to continue to operate in a safe and sound manner, the NCUA may take actions, including placing Constitution into conservatorship, to protect the interests of depositors insured by the NCUSIF," said the auditor. The losses for 2008 include $55.4 million on investments and the write-off of $33.9 million of capital in U.S. Central.
"The aforementioned weakened financial condition of Constitution and the uncertainty of the effects of possible future regulatory actions raise substantial doubt about the ability of Constitution to continue as a going concern," the auditor said.
The annual report, posted last Friday, shows Constitution lost $84.3 million last year, creating negative equity of $317 million.
As a result of the losses recorded in 2008, Constitution has completely exhausted its core capital balances of corporate reserves and retained earnings and it has an undivided net loss of $32.5 million at December 31, 2008. Total regulatory capital, comprised of the accumulated net loss and membership capital shares net of the amortized portion of shares on notice, has also been significantly impacted by the losses and totaled $33.5 million as of December 31, 2008.
The news has not gotten much better in 2009, with losses of $64.5 million for the first six months of the year.
The corporate declined to comment on the report but Robert Nealon, its CEO said in a prepared statement, "While we are disappointed in the numbers they speak to these difficult times, we are operating in tight cost controls and working closely with the regulators. Management remains totally focused on continuing to provide a high level of service to the membership."
