Losses Mount At Constitution Corporate FCU

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WALLINGFORD, Conn. – Troubled Constitution Corporate FCU on Friday reported another $1.2 million of losses for June, pushing its NCUA-subsidized prior undivided earnings deficit up to $24.5 million at mid-year.

The PUED is an extraordinary guarantee issued by NCUA that enables credit unions to continue operating without any capital. NCUA has issued similar guarantees for U.S. Central FCU and WesCorp FCU.

Similar to those two failed corporates and several others, Constitution reported that projected losses increasingly are growing into actual credit losses. Constitution began experiencing actual credit losses of principal on its residential mortgage related securities beginning in March. The credit loss of principal is measured as a reduction of par value of an investment without receiving a corresponding cash payment. Total loss of principal through June has amounted to $3.7 million.

Based on third-party projections it is currently estimated that five bonds may incur actual credit losses during 2010, aggregating approximately $14 million.

As is the case at other large corporates, budget-cutting and other moves have returned Constitution to an operating profit – $639,000 for the first six months of the year for Constitution. But huge investment losses – $184.2 million for 2009 and $142.4 million for the first half of 2009 – have erased all of its member capital, rendering the $1.2 billion corporate insolvent despite the NCUA subsidy.

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