LENEXA, Kan. - Increased exposure to the subprime mortgage market through mortgage backed securities caused U.S. Central FCU to report losses of almost $17 million for the third quarter.
The losses and increasing troubles in its MBS portfolio prompted Standard & Poor's on Tuesday to downgrade U.S. Central's short-term outlook to negative, from stable.
"The outlook revision," said the Wall Street rating agency, "reflects increased concerns about USC's exposure to subprime, home equity, and other MBS, the market for which is currently facing a severe liquidity drought brought on by concerns over fundamental deterioration in the housing market."
Robert Hoban, S&P's credit union analyst, said the losses may not seem like much for the $49.8 billion in assets managed by U.S. Central at the end of the third quarter, but are amplified by the low capital maintained by the corporate credit unions' corporate, around 2%.
"Even small losses on securities are magnified because of the high leverage of capital," Hoban told The Credit Union Journal yesterday. U.S. Central officials did not return several phone calls seeking comment.
The "negative outlook" reflects the rating agency's projection that U.S. Central will face further market value depreciation in its mortgage-backed securities in the near term. "We believe that the longer it takes for liquidity to return to these securities markets," said S&P, "the more pressure there will be on USC to reduce its exposure, which could turn unrealized losses into realized losses and result in further strains on capitalization and profitability."
