DALLAS – The corporate credit union network, already holding billions of dollars of distressed mortgage backed securities, was working last week to determine potential losses related to its ties with Lehman Brothers Holdings, the venerable Wall Street brokerage that filed for bankruptcy two weeks ago.
Southwest Corporate FCU, the $12 billion corporate, reported Friday it had $49.5 million in senior debt exposure to Lehman at August 31 and external credit sources said it could expect losses from 20% all the way up to 70%. "The expected recovery will depend on how quickly Lehman is forced to liquidate securities into the current distressed market," the corporate reported.
The day before, Members United Corporate FCU reported it has $45 million invested in Lehman for which it will have to create an other-than-temporary impairment charge.
And earlier in the week, U.S. Central FCU reported its exposure to Lehman includes "several interest rate swaps" with a total potential loss of less than $1 million.
Several of the corporates said they are holding so-called private-label mortgage backed securities issued by Lehman but were confident they would recoup the value of those bonds because they are held in and administered by an independent trust that should continue to operate through the bankruptcy, the biggest in U.S. history.
Mid-Atlantic Corporate FCU also told its members last week the Lehman Brothers bankruptcy and the bailout of American International Group have had no impact to Mid-Atlantic Corporate and Mid-Atlantic has no holdings with either of those companies.
Corporate One FCU, in Columbus, Ohio, said it has no direct exposure to Lehman, with no debt or preferred Lehman stock on its books. "Additionally," Lee Butke, president of the $5 billion corporate told his members, "Corporate One does not offer derivatives, we have no counterparty risk to Lehman Brothers either."
But Corporate One FCU markets Lehman’s CampusDoor C.U. Student HELP loans to credit unions. The corporate said the company has indicated it will continue making loans, but with more stringent credit requirements.
"The number of loans being approved has decreased as credit for student fund lending has become increasingly tight. Typically, only those with the best credit are being approved for student loans through the program," said Corporate One.
CampusDoor is a wholly owned subsidiary of Lehman Brothers Bank, FSB, which is a subsidiary of Lehman Brothers Holdings.
