WARRENVILLE, Ill. – Members United Corporate FCU told its members last week it expects to exhaust as much as $230 million of capital it held in U.S. Central FCU, adding to the woes of the $9 billion corporate and its members.
The exhaustion of its U.S. Central capital will trickle down to Members United’s 2,300 credit union members, affecting more than twice as many credit unions as the failure of WesCorp FCU, which had 1,022 members.
"It is likely that Members United will incur losses that exceed current retained earnings balances which could ultimately require allocation against our members’ capital investments," the corporate reported last Thursday, the day after U.S. Central told its corporate members that losses on its investments have wiped out all of their paid-in-capital and 63% of their membership capital shares.
In fact, many Members United member credit unions have already begun charging-off some of their capital in the troubled corporate in the first quarter, and more still are expected to record charges in the second quarter.
The loss of its U.S. Central capital is one of a variety of troubles cited by Members United in a report to members that also noted the increase in unrealized losses on its investments to $2.3 billion at March 31, an expected loss of almost $10 million on loans made to the failed Central States Mortgage Co., and the write-down of $1.4 million of the corporate’s $2 million 1% National CU Share Insurance Fund deposit as a result of NCUA’s corporate credit union bailout. In addition, Members United is expected to take an additional charge on its $45 million of senior unsecured debt issued by the failed Lehman Brothers Holdings.
Members United said it has taken a number of steps aimed at minimizing losses to its members. Among those are participation in NCUA’s program guaranteeing all corporate deposits; suspending the purchase of mortgage-backed securities; holding illiquid securities as long as possible until they recover in value; and reducing operating expenses.
The corporate, which has yet to issue its financial statement for 2008, said it has been waiting for U.S. Central to issues its 2008 financials first, in order to determine hoe U.S. Central’s failure will affect its own books.
