WALLINGFORD, Conn. – Constitution Corporate FCU said yesterday more losses in September erased all of its remaining member capital, requiring NCUA to provide it with special assistance.
The $1.3 billion corporate credit union reported another $14.9 million loss for September, making total losses of $77.4 million for the first three quarters of the year. The additional losses combined with the trickledown of more losses from U.S. Central FCU to erase the remaining $18.5 million of member capital shares in Constitution Corporate and requiring a $2.4 million guarantee of the so-called prior undivided earning deficit by NCUA.
Constitution Corporate is the third corporate credit union to receive assistance from NCUA, following the March 20 takeover of corporate giants U.S. Central and WesCorp FCU.
The NCUA guarantee of losses is one of several ways the federal agency may aid a troubled credit union, according to Charles Felker, one-time corporate examiner and investment officer at NCUA. "That’s a form of special assistance," said Felker, now a vice president with credit union bond house First Empire Securities. "Rather than put cash in they guarantee the accounts."
NCUA spokesman John McKechnie would not comment on a potential conservatorship of Constitution, telling The Credit Union Journal yesterday only that the regulator is "working with the management of Constitution in an effort to continue safe operations and uninterrupted service to its members. There are potential cost implications whenever any credit union has a negative capital position. NCUA's supervision approach is to pursue a long-term least-cost resolution strategy. This can include allowing an institution to continue operations if it makes economic sense to do so."
In response to an interview request, Constitution Corporate CFO Michael Kinne released a statement saying that the $2.4 million deficit has now been covered by the NCUSIF and service to members, including deposit dividend payments, continues uninterrupted. "Constitution’s board of directors and management remain in place and are committed to improving the profitability of the corporate," he told Credit Union Journal. "We continue to operate under tight cost controls and work in close contact with the regulators. Management continues to be dedicated to delivering a high level of service to the membership."
Yesterday’s financial report means Constitution Corporate’s capital, including all reserves, paid in capital and member capital shares, are now fully depleted. Investment losses and an OTTI charge of $79.9 million led the corporate to report a $77.4 million net loss through the end of September. The corporate has not seen the bleeding in its investment portfolio slow, much less stop.
Constitution reported a $64.5 million loss through the first half of 2009, but the red ink has worsened by more than $15 million in the last three months. If the trend continues, 2009 could end up being worse than 2008, as Constitution reported an $84.3 million loss last year, including $55.4 million from investments and a $33.9 million write off of capital in failed U.S. Central. The steep losses at the $1.3 billion institution led auditor PricewaterhouseCoopers LLC to speculate about Constitution’s viability in its 2008 financial statement. "As a result of Constitution's financial condition, the NCUA is continually monitoring the liquidity, earnings and capital adequacy of Constitution. Based on their assessment of Constitution's ability to continue to operate in a safe and sound manner, the NCUA may take actions, including placing Constitution into conservatorship, to protect the interests of depositors insured by the NCUSIF," the firm stated.
