WARRENVILLE, Ill.-Members United Corporate FCU said that losses of $511 million it reported the previous month erased $424.7 million of retained earnings and created negative retained earnings of $124.3 million.
Retained earnings serve as a buffer between losses and a corporate credit union's capital, according to Charles Felker, vice president and credit union bond house First Empire Securities, and the former chief investment officer for NCUA.
"The next group of losses, if you will, will eat into the corporate's capital, its paid-in-capital and membership shares owned by its members," said Felker, who actually chartered the forerunner to Members United, then known as Empire State Corporate FCU, while he was working for NCUA.
The question now is how much of the losses will trickle down to the corporate's 2,300 natural person credit union members, said Felker.
Members United got a big break when NCUA agreed to allow corporates to exhaust just 23% of their membership capital shares in U.S. Central FCU, instead of the 63% directed earlier. This allowed Members United to add back $81 million of its own capital-and allow it to lower the impairment it is directing its members to record on their Members United shares to 10%, from 27% estimated two weeks before.
The losses have cut Members United's regulatory capital to 4.5%, just below NCUA's 5% minimum. But NCUA has enacted a regulatory forbearance and will allow all corporates to operate at capital levels they reported on Nov. 30, before the write-down related to U.S. Central.
Constitution Corp Exhausts Retained Earnings
Separately, Constitution Corporate FCU said the combination of losses on its distressed mortgage securities and the write-down of its shares in U.S. Central FCU has eliminated all of its retained earnings and will cause it to start using its member capital shares to absorb additional losses.
The $1.4-billion institution is the latest corporate to report red ink, with a loss of $14.5 million for 2008, and a $36.9-million loss for the first quarter of 2009.
The combination of losses and impairment of U.S. Central capital has eliminated all of Constitution's retained earnings and reduced its regulatory capital to just 2.5%, which is below NCUA's regulatory minimum of 4%.
