LAS VEGAS – Corporate credit union executives gathered here last week for the regular meeting of the Association of Corporate CUs but were unable to develop a consensus on how to deal with the growing losses–now estimated at upwards of $14 billion–on their mortgage backed securities.
"They were all over the place," said one credit union lobbyist who attended the meetings, of the discussions.
The corporates are expected to report increased losses this week on their securities when they publish financials for October. Corporate One FCU, one of the first corporates to post October financials, reported that unrealized losses on its held-for-sale securities rose by $33 million in the month to almost $300 million.
Several other corporates, including WesCorp FCU, Members United Corporate FCU, Southwest Corporate FCU, Southeast Corporate FCU and Constitution Corporate FCU, are also expected to report growing losses on their portfolios in the coming days.
The corporates have reported almost $10 billion of losses on held-for-sale securities. But still unknown is the amount of losses on billions of dollars in so-called held-to-maturity securities that are not reported on monthly reports. The corporates have moved tens of billions of dollars in impaired securities to the held-to-maturity category in recent months, in hopes of holding the impaired investments through the current depressed market. For example, U.S. Central FCU has reported $3.8 billion of unrealized losses on its held-for-sale securities, but an additional $2.3 billion–a total of $6.1 billion of unrealized losses when adding in held-to-maturity securities.
The growing losses are making it increasingly difficult to devise a solution for the corporates. According to David Dickens, senior vice president for asset liability management at U.S. Central, a plan to either sell impaired securities under the Treasury’s Troubled Asset Relief Program or an NCUA TARP would require the corporates to realize some of those vast losses. A proposal that would acquire the impaired securities from the corporates and manage them in a corporate credit union entity would also require that the losses be realized under generally accepted accounting principles, or GAAP, according to Dickens.
In the meantime, the depressed markets continue to push down the values of the corporates’ holdings, increasing the unrealized losses on the books. U.S. Central, for example, reported that the growing losses on its books has pushed it below NCUA’s minimum net economic value, NEV, a key indicator to determine whether an entity has enough capital to absorb potential changes to its holdings, prompting U.S. Central to receive a waiver from NCUA on NEV limits.
The declining ratings on mortgage securities has also prompted many corporates to obtain waivers from NCUA to enable them to continue to hold the securities. Corporate One reported it has requested a waiver from NCUA to hold two securities with a value of $198.4 million that have been downgraded by the rating agencies.
