NORWALK, Conn. – Representatives of the corporate credit union system, buried under billions of dollars of mark-to-market losses, are lobbying the Financial Accounting Standards Board to amend the rules in short time so they can shed some of these losses.
The FASB, which sets the rules for generally accepted accounting principals, of GAAP, is considering a change to mark-to-market which would allow entities to report on the expected losses, known as other-than-temporary impairment, on their income statements and move the greater portion of unrealized losses to footnotes.
The corporates want the FASB to act expeditiously so they can apply it to the first quarter financials–as well as retroactively to the 2008 financials.
Failure by the FASB to act could be ruinous to the corporate credit unions which are not only mired under large mark-to-market losses but are also being forced to charge off more than $2 billion of their capital in U.S. Central FCU, pushing most of the below regulatory capital standards.
The proposal, said Ronald Boehnlein, chief financial officer for CenCorp CU, in a comment letter submitted to FASB, "is a significant improvement over the current standards for accounting for Other-Than-Temporary-Impairment. We agree that the amount to be recognized in earnings should be the credit loss component, in a manner similar to loan impairment."
"Overall, Corporate One believes this is a much needed change to the current guidance regarding other-than-temporary impairment," wrote Melissa Ashley, chief financial officer for the $4.5-billion Columbus, Ohio, corporate. "In addition, this improvement to the current guidance better aligns the accounting for security impairments with accounting for loan impairments."
By way of example, Ashley said under current FASB rules, Corporate One was forced to take a $5-million OTTI charge on two mortgage-backed securities it plans to hold to maturity, even though it believes the ultimate loss will be close to $2 million.
The CFO for Corporate One, which is sitting on more than $370 million of unrealized losses on its investments, urged the FASB to allow, but not require, the amended reporting for OTTI be applied retroactively to 2008. "Corporate One views retroactive application as critical," she wrote. "Although we are encouraged that FASB is addressing this critical issue now, the FASB should have addressed this issue in 2008."
"Ideally," said Todd Adams, CFO for Members United Corporate FCU, which is calculating OTTI on more than $3 billion of unrealized losses, FASB should go one step further and allow companies that have already recorded OTTI under the prior interpretation of the rules to reverse the non-credit portion of prior impairments upon adoption."
Thomas Graham, president of SunCorp FCU, which reported more than $160 million of unrealized losses at year-end 2008, said FASB should allow for reversals of prior OTTI charges or impairments. "You must permit reversals of impairment in this new guidance and that guidance must also be applied back to the financial statements ended December 31, 2008, because of the errors and the distortions created in the previous guidance," he wrote.
