WARRENVILLE, Ill. – Members United Corporate FCU reported that its growing losses and diminishing capital have prompted the Federal Reserve to cut off its access to the discount window for emergency loans.
October’s action by the Fed came as the $8.5 billion corporate was reporting a $149.6 million loss for the month and a $295.1 million loss for 2009. On Monday Members United depleted, or wrote down, another $146.8 million of membership capital shares, leaving just $145.6 million of MCS to absorb future losses.
The Fed’s unusual cut-off of Members United comes a year after it and four other corporates, at the behest of NCUA, obtained access to the Fed’s emergency loans and is the latest signal of distress for the troubled corporate. "This calls into question their existence as a going concern. That’s what this tells me," said Charles Felker, a vice president of credit union bond house First Empire Securities and a former corporate credit union examiner for NCUA. "If Members United can no longer get access to the discount window that raises a question of their viability."
Throughout the corporate credit union crisis the Fed’s discount window has provided important short-term liquidity for several corporates, including U.S. Central FCU and WesCorp FCU.
Members United said it has adequate external funding sources even after the Fed’s move, citing a doubling of cash and equivalents over the past year to $3.2 billion. At the end of October, Members United had $167.6 million in outstanding borrowings, consisting of $103.6 million from the Federal Home Loan Bank of Chicago and $64 million from U.S. Central.
"We have not borrowed from the discount window and did not anticipate a need to borrow from the window due to our strong liquidity position," said Ronald Koza, chief investment officer for Members United, in a prepared statement provided to the Credit Union Journal. "Members United is currently above expected seasonal trends for liquidity, and has been for most of 2009."
"With the implementation of the Temporary Corporate Credit Union Share Guarantee Program, access to the discount window as a source of back-up liquidity is less important today for Members United than it was at the beginning of the year, when we first put the facility in place as a contingency. Collateral maintained at the Federal Reserve Bank has been released and is available for other borrowings."
