LENEXA, Kan.-Hours after U.S. Central FCU reported a massive $1.1-billion loss for the first half of the year its corporate members began accruing losses to their own capital in U.S. Central - an additional $500 million - some of which will be passed on to their own natural person credit union members in the coming months.
Members United Corporate FCU, Warrenville, Ill., told its 2,000 members the U.S. Central move will erase another $81 million of its capital, which, coupled with losses on its mortgage-backed securities, will eventually force it to pass on a $205-million depletion of its own member capital shares. Southeast Corporate FCU, in Tallahassee, Fla., said it expects to eventually pass on about $6.1 million in charges from the loss of its capital in U.S. Central FCU to some of its members.
And Wallingford, Conn.-based Constitution Corporate FCU, another corporate holding large amounts of underwater mortgage securities, told its members the losses at U.S. Central will force it to charge off 72% of the member capital shares its members own, a total of $48.4 million.
Mounting losses on the U.S. Central investments - $3.8 billion over the past 18 months - have continued to eat into the one-time $52-billion institution's capital. So far $1.8 billion of U.S. Central's capital has been erased, and more is expected. The losses have had a trickle-down effect, first being passed on to corporates, then to the corporates' members.
U.S. Central had been telling its 27 corporate credit union members for months they could charge-off just 23% of their membership capital shares-roughly $287 million. But on July 31, U.S. Central reported another $537 million of losses on mortgage-backed securities, meaning 63% of MCS, or another $500 million of corporates' capital, will be wiped out.
The back-and-forth represents a kind of regulatory take-away, as NCUA, which has been operating U.S. Central under conservatorship since March 20, first told corporates they would have to charge-off 63% of their U.S. Central MCS, then lowered the figure to 23%, before raising it again July 31 to 63.2% - creating the additional $500 million charge.
Corporates, which have been waiting for the other shoe to drop, began telling members hours after the U.S. Central announcement they are going to have to write down the value of their own shares as a result of the action.
Playing The Waiting Game
But most of the corporates, who are still waiting for the release of U.S. Central's 2008 audited financials-which are expected to show additional losses - were reluctant to make any definitive estimates as to the loss of member capital. "However, until U.S. Central releases its 2008 audited financials, these numbers are subject to change," Rob Schleiter, executive vice president for Southeast Corporate, told his members in a letter. "A change may impact either or both our 2008 and 2009 financial statements, and may ultimately have a downstream effect on your financial statements."
"Unfortunately, U.S. Central losses continue to be a moving target," Jim Hansen, president of Virginia Corporate FCU, told his members, as he was reporting a $16-million depletion of his own members capital trickling down from U.S. Central. VACorp, like several other corporates, will wait until U.S. Central releases long-delayed 2008 report and NCUA confirms the accounting, before recording any write-downs of its own capital, Hansen told his members.
Georgia Central Corporate CU also told its members it expects to have to deplete their capital, by about $30 million, as a result of the U.S. Central actions, but will delay depleting its capital until the U.S. Central report. "We continue to defer depletion of U.S. Central capital on Georgia Central's books, as well as the possible depletion of our members' capital, until after the release of U.S. Central's audited financials and consultation with our auditor," Greg Moore, president of the $1.8 billion corporate, told his members.
