ALEXANDRIA, Va. – The plunging markets for securities held by corporate credit unions has left NCUA between a rock and a hard place as it seeks to minimize potential losses among the corporate network.
On the one hand, the market has shown no signs of improving, causing the losses on those securities to snowball to more than $14 billion at the end of November. But NCUA is loath to order a sell-off of the distressed securities which would force the corporates to start realizing some of those losses.
The corporates are sitting on a huge amount of securities that are decreasing in value every month, centered on a handful of corporates, but almost every corporate has some underwater securities on its books. The biggest losses are held by: U.S. Central FCU $7.3 billion; WesCorp FCU $1.7 billion; Members United FCU $1.6 billion: Southwest Corporate FCU, $1.2 billion; Corporate One FCU, $300 million; Constitution Corporate FCU, $230 million; Southeast Corporate FCU, $136 million and SunCorp FCU $118 million.
But smaller corporates are also reporting unrealized losses: EasCorp FCU, $5.9 million; CenCorp, $22.8 million; Corporate Central CU, $10 million; Corporate America CU, $15.3 million; First Corporate FCU, $14.5 million; Mid-Atlantic Corporate FCU, $5.5 million; Louisiana Corporate FCU, $3.2 million; Georgia Central CU, $2.3 million; Virginia Corporate FCu, $1.6 million; Kansas Corporate CU, $512,000. All of these figures are for Sept. 30, before the worst of the market gyrations diminished their securities even further.
NCUA has on-site examiners at the corporates, keeping a close watch on the securities, while reluctant to force a sale under the current market conditions, according to Scott Hunt, acting director of NCUA’s Office of Corporate CUs. "In many cases, the selling price is the indication of an illiquid market," Hunt told The Credit Union Journal.
But some experts worry the strategy will backfire by increasing the eventual losses to the corporate network. "There’s a loss to be absorbed. The only question out there is who is going to absorb the loss; the corporates, NCUA or the natural person credit unions?" said Charles Felker, vice president of credit union bond house First Empire Securities and the former director of NCUA’s Office of Investments.
What is exacerbating the corporates’ problems, said Felker, is the fact the corporates need to continue borrowing huge amounts in order to be able to hold on to the underwater securities at a time when natural person credit unions are withdrawing their funds in anticipation of the realized losses. "It’s not quite a run, yet, but I’d characterize it more as a mini-walk," said Felker of the large decline in corporate deposits in recent months.
To help buy some time for the corporates, NCUA announced a program last week that would give the corporates back-door access to the emergency lending fund, the Central Liquidity Facility. The program is aimed at helping those handful of corporates replace outside debt with low-cost debt from within the credit union system.
