ALEXANDRIA, Va. – Corporate credit unions were reporting increased losses on their mortgage securities yesterday, while several were disclosing exposure to Lehman Brothers Holdings, the Wall Street brokerage that filed for bankruptcy last week.
WesCorp FCU, which holds $28 billion in assets, told its members yesterday that unrealized losses on its investments grew by $100 million in August to $1.7 billion, as the crisis continued to batter the mortgage markets.
Members United Corporate FCU, a $10 billion corporate, reported an additional $43 million in unrealized losses to $1.2 billion; $4 billion Corporate One FCU reported an additional $14 million in losses to a total of $275 million; while Corporate Central CU, the $2 billion Wisconsin corporate reported unrealized losses on its portfolio rose to $5.6 million at August 30, from just $941,000 at July 31.
Earlier in the week, U.S. Central FCU, the $41 billion central bank for credit unions, reported that unrealized losses on its portfolio increased by $300 million during August to a total of almost $3.1 billion.
The corporate network is believed to be holding securities with unrealized losses of more than $10 billion.
In a message to its members, WesCorp said it "believes the depressed fair values are attributable to the dislocation in the securities market caused by the current illiquidity and credit conditions and not the underlying credit quality of our holdings."
Meantime, NCUA is increasingly granting waivers of its investment rules in order to enable the corporates to continue to hold them.
Robert Hoban, an analyst with Standard & Poors who follows the corporates, said the corporates are routinely receiving investment waivers from NCUA so that they won’t be forced to sell distressed securities at fire sale prices. "That’s been pretty standard for everybody," Hoban told The Credit Union Journal yesterday. "Obviously, in this market the NCUA doesn’t want anyone to sell these securities into the market. You’d see big realized losses and what was once theoretical losses would be real."
WesCorp and several other corporates reported that NCUA has granted them waivers to continue to hold distressed securities that have been downgraded below the permissible ratings for corporate securities.
Members United reported yesterday that four additional securities were downgraded during August to below what they are permitted to hold. "We are currently working on the required application to the NCUA to request their approval to hold these securities," the corporate told its members.
Some of the corporates were reporting exposure to Lehman. Members United said yesterday it has $45 million invested in Lehman for which it will have to create an other-than-temporary impairment charge.
U.S. Central reported Monday its exposure to Lehman includes "several interest rate swaps" with a total potential loss of less than $1 million.
