CHICAGO – Corporate credit unions began discounting hundreds of millions of dollars of their membership capital Friday afternoon, hours after U.S. Central FCU announced a staggering $1.1 billion loss for the first six months of the year.
U.S. Central had been telling its 27 corporate credit union members for months they could charge-off 23% of their membership capital shares in the one-time $52 billion institution--roughly $287 million–which are being wiped out by losses on investments. But Friday, U.S. Central reported another $537 million of losses on mortgage-becked securities, meaning 63% of MCS, or another $500 million of corporates’ capital, will be wiped out.
The back-and-forth represents a kind of regulatory take-away, as NCUA, which has been operating U.S. Central under conservatorship since March 20, first told corporates they would have to charge-off 63% of their U.S. Central MCS, then lowered the figure to 23%, before raising it again Friday to 63.2%–creating the additional $500 million charge.
Corporate credit unions, which have been waiting for the other shoe to drop, began telling their members Friday afternoon they are going to have to write-down the value of their own shares as a result of the U.S. Central action.
Members United Corporate FCU, based in the Chicago suburb of Warrenville, Ill., told its 2,000 members the U.S. Central move will erase another $81 million of its capital, which will force it to pass on a $205 million depletion of their own MCS.
Several other corporates, which have seen large losses on mortgage securities eat into their capital in the past year, were reported to be notifying their members Friday of the likelihood of a depletion of their capital accounts as a result of the U.S. Central action.
At least one, Corporate One FCU in Columbus, Ohio, maintained the additional $16.2 million loss it will accrue on its U.S. Central MCSs will not cause it to dip into its own MCSs. "We continue to expect that we will maintain a positive level of (Reserves and Undivided Earnings), meaning that any paid-in-capital or membership capital shares you have on deposit with us will remain 100% intact in the foreseeable future," Lee Butke, president of the $4 billion corporate, told his members Friday afternoon.
U.S. Central on Friday reported a $470.5 million loss for the month of June, all of it due to an additional $537 million of losses on its MBSs, particularly private-label residential MBSs.
U.S. Central, based in Lenexa, Kan., has reported losses of $3.8 billion loss over the past 18 months and still holds an estimated $10 billion of unrealized losses on its books.
U.S. Central’s report followed one a day earlier by WesCorp FCU in San Dimas, Calif., also under NCUA conservatorship, that it lost $538 million in June. The losses were due to $541.1 million of charges on its MBSs. The losses for WesCorp, which invested heavily in securities backed by so-called Alt-A and Option ARMs loans, are much steeper than those at U.S. Central. WesCorp has reported an $6.2 billion in losses in the past 18 months.
