WALL STREET – Rating agency Standard & Poor’s downgraded U.S. Central FCU again on Friday after NCUA announced a $1 billion bailout of the central bank for credit unions in the wake of a $1.2 billion loss for U.S. Central’s fourth quarter.
In explaining the latest downgrade–its fourth over the past 18 months–S&P said it expects U.S. Central to report more losses which may require additional assistance from NCUA. "It is our expectation that this doesn’t fix U.S. Central’s problem," said Robert Hoban, the corporate credit union analyst at S&P, of the corporate’s $1.2 billion fourth quarter charge and $1 billion loss for 2008.
The U.S. Central assistance is part of a bailout of the corporate credit union network that also includes a guarantee by NCUA of all corporate deposits which will be funded by a $5 billion assessment on credit unions by NCUA in order to recapitalize the National CU Share Insurance Fund.
U.S. Central’s fourth quarter charge was related to $2.3 billion of private label mortgage backed securities. U.S. Central said it expects to permanently charge-off $420 million of the $1.2 billion charge and hopes to recapture some of the remainder of the charge.
Hoban, who has been covering U.S. Central for more than a decade, said he expects the corporate to take additional charges down the road for other of the $9.6 billion of unrealized losses it had on its books at the end of November. "We don’t think this is the end of their need for help," Hoban told The Credit Union Journal Friday.
"We took this action as the result of USC’s announcement that it was taking $1.2 billion of securities write-downs, which wiped out existing core capital, and the announcement that USC was receiving additional extraordinary assistance from its regulator," said S&P, of the reduction in its counterparty rating on U.S. Central to AA-/A-1+, from AA+/A-1+, with a "negative outlook."
"The negative outlook incorporates our assumption that USC will be exposed to more asset-quality deterioration in its investment portfolio, which may necessitate further government support over the medium term, likely in the form of additional capital," said Hoban.
