WARRENVILLE, Ill. – Corporate credit unions are reporting hundreds of millions of new losses on their books, the direct result of last month’s decision by the Treasury Department to abandon its plans to buy illiquid assets from financial institutions.
U.S. Central FCU, the central bank for credit unions, reported that unrealized losses on its books soared last month from $8.3 billion to a staggering $9.6 billion, after the Treasury's announcement. "The announcement, coupled with continued fears about the U.S. economy and overall market illiquidity, caused spreads on these assets to widen significanty, resulting in a decline in fair value," U.S. Central told its members on Friday.
Members United Corporate FCU reported Friday that unrealized losses on its books grew by another $380 million in November, a whopping 24%, to more than $1.9 billion. Members United announced lay-offs and cost-cutting earlier in the month aimed at savings $10 million a year.
Southeast Corporate FCU also reported Friday a 28% increase for the month in its unrealized losses to a total of $174.5 million.
Other corporates are expected to report millions of new losses in the coming days as the market for their holdings continues their historic declines. Observers will be watching closely reports from WesCorp FCU and Southwest Corporate, which reported losses of $1.7 billion and $1.2 billion, respectively, through the end of October.
Unrealized losses on the corporates’ books are now estimated to be as much as $17 billion, with more than half of that on the books of U.S. Central.
Meantime, several corporates said last week they have no plans to participate in NCUA’s new CU System Investment Program aimed at boosting liquidity in the system, despite being burdened with their own losses.
Corporate One FCU, the Columbus, Ohio, corporate with more than $300 million of losses on its books, told members it has adequate liquidity and will not be asking NCUA to place any of the low-rate SIP funds with it. The $4 billion corporate said its commercial paper line will serve as a less expensive source of external funding, and that $346.5 million in loans it has with the Federal Home Loan Bank of Cincinnati carries heavy pre-payment penalties making the replacement of the loans with SIP funds impractical.
Mid-Atlantic Corporate FCU, which has a smaller $5.5 million loss on its holdings, said it has no plans to participate in the SIP because it has no external borrowings. The requirement for participating in the new NCUA program is that proceeds from the offering be used to repay external debt.
NCUA Chairman Michael Fryzel said last week the SIP initiative is only supposed to be a stop-gap measure and the agency continues to meet with representatives of the corporates to discuss a long-term solution to the corporate losses. "It’s buying us time," Fryzel told The Credit Union Journal. "This is going to take us into next year."
