WALL STREET – Fitch Ratings yesterday slashed its ratings on eight corporate credit unions it said will have most of their capital wiped out by Friday’s takeover of U.S. Central FCU.
The elimination of $2 billion of capital–membership capital shares and paid-in-capital held by U.S. Central 26 corporate members–will result in the other eight corporates rated by Fitch falling below regulatory capital minimums, according to David Spring, a corporate analyst for Fitch. As a result, Fitch cut its Individual rating for each of the eight corporates yesterday to ‘E,’ its second lowest rating.
The eight corporates are Members United Corporate FCU, Southwest Corporate FCU, Constitution Corporate FCU, Southeast Corporate FCU, First Corporate FCU, Central Corporate CU, EasCorp FCU and Mid-Atlantic Corporate FCU.
"From a stand-along basis, each of these corporates will either require support or forbearance from the regulatory authority," Spring told The Credit Union Journal yesterday. "We believe that the capital ratios and expected changes in the level of stress comes from potential further declines in investments in their own portfolios."
"What was new this morning was that the degree of the impairment of their capital shares in U.S. Central is now known," said Spring, of NCUA’s determination to eliminate all of the capital in the corporate giant.
With the elimination of the capital in U.S. Central all of the corporates will fall below or near the minimum of NCUA’s retained earnings or total capital ratios, according to Ken Ritz, another Fitch analyst who covers the coporates.
The Wall Street agency did affirm its strong issuer default ratings for each of the eight corporates because of NCUA’s express support for the corporate system.
Fitch does not rate WesCorp FCU, the $23 billion western corporate that was also taken over last Friday by NCUA.
Fitch affirmed its lowest individual rating, ‘F’ for failed, for U.S. Central, reflecting Friday’s NCUA conservatorship of the $34 billion corporate, according to Spring. Because of the government takeover, Fitch affirmed the issuer default rating at ‘AA’. "Without the government support, it would have failed," said Spring.
NCUA said Monday as a result of its takeover of U.S. Central and WesCorp all membership capital share accounts and paid-in-capital accounts are impaired and to be reported as such by members of the two corporate giants. For 1,022 credit union members of WesCorp this means they will have to take a charge for those losses in the first quarter and show it on their 5300 Call Reports.
