WALL STREET – Fitch Ratings affirmed the long- and short-term issuer default ratings for U.S. Central FCU at its highest AAA and F1+, respectively, Friday, but downgraded the overall rating outlook for the corporates’ corporate to “negative” from “stable” due to U.S. Central’s continued exposure to the subprime mortgage market.
U.S. Central’s “Balance sheet has a low risk profile and its funding and liquidity positions remain strong,” said Fitch. “At the same time, Fitch recognizes USC’s exposure to the troubled mortgage market, particularly non-prime mortgage-backed securities, which have generated meaningful losses and has heightened credit risk on the balance sheet.”
“While losses to date have been absorbed through earnings and management has taken steps to reduce its mortgage exposure, the portfolio still has meaningful exposure to the non-prime mortgage market and contains securities that could generate additional realized losses,” the Wall Street rating firm said. “Considering that USC operates with a high degree of leverage, significant additional losses could materially impair the company’s capital position, negatively affecting the company’s ratings.”
Another Wall Street ratings firm, Standard & Poor’s, also downgraded U.S. Central’s short-term outlook to “negative” from “stable” after the corporate reported a third-quarter, $17 million loss and increasing problems in its mortgage backed securities portfolio.
U.S. Central is in the process of restating its third quarter financials.
At the end of October, U.S. Central held almost $13 billion in MBSs and another $7 billion worth of securities backed by home equity loans.
