ALEXANDRIA, Va. – Corporate credit union representatives will meet with NCUA tomorrow in hopes of convincing the regulator to allow them to recapture as capital projected losses being accounted for now that do not materialize.
Under NCUA’s interpretation of generally accepted accounting principles, losses taken as so-called other-than-temporary impairment, that is projected realized losses, must be taken out of capital and cannot be used to replenish capital later on if the losses fall short of the projections.
The effort comes as billions of dollars of projected losses on mortgage-backed securities have erased some $2.7 billion of capital in U.S. Central--$650 million of retained earnings, $750 million of paid-in-capital and $1.3 billion of membership capital shares. This has forced U.S. Central’s 26 corporate members to write-down the value of their capital in U.S. Central, then in some cases, forced natural person credit unions to write down the value of their capital in their corporates.
The trickling down of lost capital from U.S. Central to corporates to natural person credit unions is exacerbating for credit unions what is already the worst economy in decades.
U.S. Central insisted this week that despite GAAP losses of $6.3 billion since the start of 2008, only $1.2 billion of those losses are “credit,” or actual losses, meaning some hope still remains that corporate credit unions may recover lost capital in the future.
The corporates hope to convince NCUA that under GAAP in a best-case scenario they can use any shortfall in projected losses in the future to replenish the capital they are depleting now. Under NCUA’s current interpretation, those funds would not go back into the capital accounts.
“It is totally unfair and inappropriate to extinguish the current capital based on future losses without the possibility of recovering that capital,” said Bill Hampel, chief economist for CUNA, who is working on the issue.
Hampel noted the uncertainties in the current accounting rules on so-called OTTI and how NCUA is applying it to the corporates.
“The trouble is that nobody knows,” what the losses will eventually be on the corporate portfolios, he said, arguing that corporates and their credit unions should be able to apply any future shortfalls in losses to their capital accounts–if that occurs. “It is unconscionable, based on the future losses to come down the road, to say that the capital is extinguished today,” Hampel told The Credit Union Journal yesterday.
