TALLAHASSEE, Fla. — Losses continued to be reported by corporate credit unions last week, with reverberations being felt by groups that included CUNA and the National Credit Union Foundation.
Southeast Corporate FCU here reported that charges related to its shares in U.S. Central FCU and its mortgage-backed securities created a $79-million loss for the month of April. The loss at Southeast is primarily attributable to the write-down of $60.5 million of the corporate's capital at U.S. Central as of April 30, 2009, and doesn't include a $23.4- million charge for 2008 recorded retroactively, according to the $3.2- billion corporate.
The remaining portion is related to the recognition of $17.7 million of other than temporary impairment related to Southeast's private-label mortgage-backed securities holdings.
A Southeast representative said despite the losses they expect to continue to provide uninterrupted services to its 425 CU members.
In Plano, Texas, Southwest Corporate FCU restated its 2008 financials to show a loss of $624.3 million. The losses effectively eliminated all of the $10-billion corporate's $317 million of retained earnings previously reported at year-end 2008, but new accounting rules allowed Southwest to reverse some of the losses on mortgage-backed securities, creating retained earnings of $10 million at April 31.
The large loss was attributed to additional charges of $479.9-million on distressed MBS and an additional $9.9-million charge on corporate bonds issued by the failed Lehman Brothers brokerage, making total charges of $40 million on Southwest's $49.5 million of Lehman senior debt.
In an additional sign of trouble, Southwest noted that two entities that insure its bonds, Syncora Guarantee and FGIC, are likely to have difficulty paying claims in the event some of the bonds default.
Southwest also recorded an impairment of $127.2 million related to its shares in U.S. Central. The adjustments pushed a $7.9-million loss for 2008 all the way to a $624.3-million loss after restatement of financials.
The losses have depleted Southwest's capital to 4.08%, below the NCUA minimum of 5%. However, because of regulatory forbearance allowed by NCUA, all corporates are being allowed to use their Nov. 30, 2008 capital for regulatory purposes, when Southwest's was at 6.08%.
At the end of April Southwest said unrealized losses on its investments had grown to $1.3 billion.
Officials at Southwest did not respond to requests for comment.
In Warrenville, Ill., Members United Corporate FCU said that losses of $511 million it reported the previous month erased $424.7 million of retained earnings and created negative retained earnings of $124.3 million.
"The next group of losses, if you will, will eat into the corporate's capital, its paid-in-capital and membership shares owned by its members," said Charles Felker, VP with CU bond house First Empire Securities, and the former chief investment officer for NCUA who actually chartered the forerunner to Members United, then known as Empire State Corporate, while at NCUA. The question now is how much of the losses will trickle down to the corporate's 2,300 natural-person credit union members, said Felker.
Members United got a big break when NCUA agreed to allow corporates to exhaust just 23% of their membership capital shares in U.S. Central instead of the 63% directed earlier. This allowed Members United to add back $81-million of its own capital and to lower the impairment it is directing its members to record on their Members United shares to 10%, from 27% estimated two weeks before.
The losses have cut Members United's regulatory capital to 4.5%, just below NCUA's 5% minimum, but as with Southwest Corp., Members United is able to use its Nov. 30, 2008 capital figure.
Constitution Corporate FCU in Wallingford, Conn., said the combination of losses on its distressed mortgage securities and the write-down of its shares in U.S. Central FCU has eliminated all of its retained earnings and will cause it to start using its member capital shares to absorb additional losses. Constitution Corporate reported a loss of $14.5 million for 2008, and a $36.9-million loss for the first quarter of 2009.
The combination of losses and impairment of U.S. Central capital has eliminated all of Constitution's retained earnings and reduced its regulatory capital to just 2.5%.
In Columbus, Ohio, Corporate One FCU said charges related to the corporate credit union bailout erased $21.6 million of net income reported earlier for 2008 and created an $18.2-million loss instead. The loss was created by a $39.6-million charge on Corporate One's capital investments with U.S. Central FCU, and a $612,000 expense for Corporate One's share of the corporate bailout charges.
After the impairment charges on its U.S. Central holdings, Corporate One still has $34.3 million of membership capital shares remaining with U.S. Central, some of which may be impaired as well. But Corporate One won't know until later on.
Corporate One also reported that reversed executive bonuses that were accrued during 2008 but subsequently not paid in 2009, which added to its bottom line. The amount of the reversal was approximately $456,000.
For the first four months of 2009 Corporate One reported a 33% decline in net income from the same period last year to $5.9 million. Unrealized losses on its $4 billion of investments rose to $363.6 million at April 30, compared to $261.1 million a year ago.
Over the last year the corporate's capital declined by 2%, or $5.8 million, to $235.6 million, but at 5.93% it is still well above NCUA's minimum of 5%.
