NEW YORK – Eight months after the collapse of Lehman Brothers Holdings corporate credit unions are chalking up millions of dollars of additional losses on their exposure to the venerable Wall Street brokerage as the huge case continues to unravel in bankruptcy court.
Southwest Corporate FCU reported last week it took an additional charge of $9.9 million on $49.5 million of unsecured senior debt it held with Lehman, bringing total charges to $40 million for its Lehman exposure. Members United Corporate FCU told its members a $511 million loss included an additional write-down on the $50 million os Lehman senior debt it held. Members United now values its Lehman holdings to just $5 million, or 10 cents on the dollar, down from 50 cents as earlier reported.
The losses have exacerbated the financial stress on these corporates, which are already weighed down by losses on their mortgage-backed securities. Most experts belive Lehman debt will eventually be charged-off completely. "Ultimately, the debt holders will all be wiped out," said one financial industry observer involved in the bond markets.
In addition to Southwest and Members United, WesCorp FCU and U.S. Central, taken over by NCUA in March, are expected to take additional charges in the millions on their Lehman exposure.
WesCorp, for example, paid Lehman $3.9 million to cancel and replace several derivatives it had with Lehman. Lehman filed for Chapter 11 bankruptcy on Sept. 15 causing thousands of counterparties on financial derivatives to record losses under counterparty agreements.
U.S. Central charged-off $800,000 of Lehman exposure late last year after the brokerage filed for bankruptcy and is expected to take additional charges.
Credit unions are also exposed to Lehman Brothers in a variety of other ways. Several Federal Home Loan Banks, especially those in Seattle and Atlanta, have heavy exposure to the failed brokerage. The Seattle Bank reported a $4.2 million net loss on the termination of derivatives contracts with Lehman Brothers Special Financing.
