WASHINGTON - With growing unrealized losses on their mortgage securities, corporate credit unions are tapping into additional sources of liquidity to help tide them over until the markets turn up.
Several corporates have been approved in recent months to access the Federal Reserve's discount window or are accessing their Federal Home Loan Banks, while others are taking advantage of new NCUA initiatives to insure short-term lines of credit for the corporate network or expanding capacity of the Central Liquidity Facility.
"This is great news," Members United Corporate FCU CFO Todd Adams said of September's approval by the Fed to access the discount window. "Our members can take additional comfort in the availability of this line, as it provides us with another tool to ensure that performing assets do not have to be sold into this dislocated market at a deep discount, which would add to losses."
Other corporates obtaining access to the Fed's discount window in recent months include U.S. Central FCU and WesCorp FCU.
Members United said it has also tapped its line of credit with the Federal Home Loan Bank of Chicago for $235.4 million, up from just $5.4 million a year ago.
Southwest Corporate FCU, whose unrealized losses have grown to $1.1 billion, reported it has borrowed $1 billion from the FHLB of Dallas. Corporate One FCU said it has tapped into its line of credit with the FHLB of Cincinnati for $330 million. U.S. Central, which is sitting on as much as $6 billion in unrealized losses, has almost exhausted its line of credit with the FHLB of Topeka with almost $6 billion in borrowings.
The additional liquidity will help these corporates to hold on to underwater securities while waiting for the market to improve.
In explaining their plans, Southwest Corporate's CFO Melissa Wardell said they want to hold the impaired mortgage securities to maturity, in hopes that a rebound in the market will erase the unrealized losses on the portfolio. "Southwest Corporate is basically a buy and hold operation. Our intention is to hold them to maturity," she said. The additional liquidity enhances their ability to hold the impaired securities.
Several corporates also reported increased demand for liquidity from natural person credit unions, some of which they are satisfying through the Central Liquidity Facility, the emergency loan fund managed by NCUA but owned by the corporates. Southwest said it had $1 billion of loans outstanding to its credit union members at Sept. 30, up from $473.1 million a year ago. About $100 million of the additional loans are being funneled through the CLF. Members United has funneled $174.9 million of loans through the CLF.
Kenneth Ritz, an industry analyst with Fitch Investors who follows the corporates, said most of the corporates have adequate liquidity to be able to continue to hold the securities to maturity and not be subject to a fire sale.
"With the exception of Members United and Southwest, which had Lehman Brothers holdings and are going to have to be taking some charges, most of the corporates have the ability to hold to maturity," said Ritz.
"The one thing to keep in mind is they all are very highly rated companies and they still remain very high credit quality companies, given what's happened to other financial institutions," he said.
