LENEXA, Kan. – Last week’s first quarter report by U.S. Central FCU gave corporate credit unions a glimmer of hope on recovering an additional $500 million of membership capital shares in their failed corporate.
That’s the difference between the $786 million of MCS NCUA said last month they should extinguish and the $287 the U.S. Central said last week should be extinguished. While NCUA, which is running U.S. Central under conservatorship, said it still expects the additional $500 million to be extinguished as well, several corporates are holding out hope it will be a lesser amount than that.
Some corporates facing capital shortfalls of their own were already adding back some of the losses.
"The change to U.S. Central’s credit losses means that Southwest Corporate’s member’s capital account at U.S. Central has been replenished by $68 million, resulting in a 23% reduction versus the 63% reduction originally reported," John Cassidy, the president of Southwest Corporate FCU, told his members last week.
Otherwise, Southwest will have to take a $195 million charge for its U.S. Central shares, as well as a $187 million charge for losses on investments–a $382 million loss--pushing its capital below NCUA’s minimum at 3.97%.
But now Southwest will add $68 million of U.S. Central capital back into its financials, Cassidy told members.
Members United Corporate FCU, which reported a loss of $511, that included a $234 charge for its U.S. Central shares, said it is now subtracting $81 million from those losses, and adding it back into its own capital.
As a result, Members United expects its 2,300 credit union members to trim the losses on their Members United capital from 27% estimated two weeks ago, down to just 10%, Joseph Herbst, president of the $9 billion corporate, told his members last week.
U.S. Central reported last week that losses on its investment portfolio for 2008 surged to $3.8 billion, from the $1.2 billion reported in January. That wipes out all of U.S. Central’s retained earnings and $750 million of paid-in-capital held by the 27 corporate members of U.S. Central, but only 23% of the $1.2 billion of MCS–for now.
Corporate executives are hoping that the miserable mortgage market will turn around, allowing U.S. Central to regain some of the lost value on its mortgage-backed securities, thus keeping losses on the MCS below 63%.
Herbst’s made clear to his members the ramifications of the higher losses on Members United’s capital if U.S. Central is forced to extinguish more than the 23% of their MCS. That is, the additional charges to Members United will trickle down to them.
"Please note that there is still the possibility that we may need to impair all of our USC MCS based on the final review," Herbst told his members. "Should our auditors decide that impairment of our capital at USC be a higher level than the 23% depletion, the range for our members could be as high as 42% of their MCS at Members United."
