WALLINGFORD, Conn. — Constitution Corporate FCU is now essentially insolvent as it posted $2.44 million undivided earnings deficit in its recently released Sept. financial report. The corporate's reserves, paid in capital and member capital shares are now fully depleted.
Investment losses and an OTTI charge of $79.9 million led the corporate to report a $77.4-million net loss through the end of September. The corporate has not seen the bleeding in its investment portfolio slow, much less stop. Constitution reported a $64.5-million loss through the first half of 2009, but the red ink has worsened by more than $15 million in the last three months.
If the trend continues, 2009 could end up being worse than 2008, as Constitution reported an $84.3-million loss last year, including $55.4-million from investments and a $33.9-million write-off of capital in failed U.S. Central. The steep losses at the $1.3 billion institution led auditor PricewaterhouseCoopers LLC to speculate about Constitution's viability in its 2008 financial statement.
"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," the firm stated.
NCUA Spokesman John McKechnie did not comment on a potential conservatorship of Constitution, telling Credit Union Journal only that the regulator is "working with the management of Constitution in an effort to continue safe operations and uninterrupted service to its members. There are potential cost implications whenever any credit union has a negative capital position. NCUA's supervision approach is to pursue a long-term least-cost resolution strategy. This can include allowing an institution to continue operations if it makes economic sense to do so."
In response to an interview request, Constitution Corporate CFO Michael Kinne released a statement saying that the $2.4 million deficit has now been covered by the NCUSIF and service to members, including deposit dividend payments, continues uninterrupted.
"Constitution's board of directors and management remain in place and are committed to improving the profitability of the corporate," he told Credit Union Journal. "We continue to operate under tight cost controls and work in close contact with the regulators. Management continues to be dedicated to delivering a high level of service to the membership."
