DALLAS – Unrealized losses on the vast securities portfolios of corporate credit unions continue to grow with two more corporates, Southwest Corporate FCU and Corporate One FCU, reporting additional mark-downs for November, and just as important, each deciding to realize some of the growing losses on their books.
Southwest quietly reported during the confusion of New Year’s Eve that unrealized losses on its books surged by $200 million in November, to almost $1.4 billion, just after the Treasury announced it would not be buying illiquid assets from corporates and other big holders. But in a sign that the corporates will have difficulty holding all of these underwater assets to maturity, Southwest recorded other-than-temporary impairment, realizing $18.5 million of losses on four bonds.
In a report to its members, Southwest said these securities are still performing but collateral losses are expected to impact them, thus necessitating the impairment charge under generally accepted accounting principles, or GAAP.
Corporate One reported it recognized other-than-temporary impairment on $5.1 million of securities in November, while the unrealized losses on its books rose to $307 million for the end of November.
Earlier, WesCorp FCU reported an increase in its unrealized losses in November to $2.8 billion; Members United Corporate FCU said it losses rose to $1.9 billion; and U.S. Central FCU reported its unrealized losses soared to a whopping $9.6 billion.
The corporate network is sitting on an estimated $18 billion of unrealized losses, the difference between the purchase price of their investments and the current market price. Corporate executives hope they can continue to hold the securities until the markets rebound, increasing the value of those investments. But the case of Southwest and Corporate One indicate that some of those securities are going to have to be accounted for as other-than-temporary impairment, causing a hit to the bottom lines of the corporates.
NCUA said Friday it will pump $4.9 billion of new funds into the corporate system later this week under its CU System Investment Program. But those funds will only be a temporary salve for the corporates, a short-term loan to allow help them hold the underwater assets while a longer-term solution is sought.
