WALLINGFORD, Conn. – Constitution Corporate FCU said the combination of losses on its distressed mortgage securities and the write-down of its shares in U.S. Central FCU has eliminated all of its retained earnings and will cause it to start using its member capital shares to absorb additional losses.
The $1.4 billion institution is the latest corporate to report red ink, with a loss of $14.5 million for 2008, and a $36.9 million loss for the first quarter of 2009.
The combination of losses and impairment of U.S. Central capital has eliminated all of Constitution’s retained earnings and reduced its regulatory capital to just 2.5%, which is below NCUA’s regulatory minimum of 4%.
Since Constitution has no paid-in-capital, the losses will be absorbed by the member capital shares owned by the corporate’s 220 credit union members. Current estimates are that members of Constitution will have to write-down the value of their member capital shares by 30% to 40%. Member capital shares, which total $67 million, will be extinguished on a pro rata basis.
Constitution is one of eight corporates that are weighed down by large exposure to mortgage securities, on which the corporate reported unrealized losses had grown to more than $360 million at the end of February, the latest report available.
In a May 14 letter to members, Robert Nealon, president, and Thomas O’Neil, president of Greater Watertown FCU and chairman of the board, of Constitution, said they have concluded that all of the corporate’s $34 million of capital exposure to U.S. Central FCU is fully impaired. "While U.S. Central’s results remain unaudited, and we may elect to wait upon their issuance before finalizing our year end statements, at this point we see no convincing evidence that the above conclusion as to impairment can be avoided," they told their members.
