LENEXA, Kan. – In another offshoot of the meltdown in the mortgage market, Standard & Poor’s said this week it downgraded its ratings for U.S. Central FCU, from its top AAA to AA+, citing the corporate credit union’s exposure to the mortgage market crisis. The move will make it more costly for U.S. Central to borrow money on the credit markets.
"With the housing market weakening to levels not seen the early 1990's down-cycle, we expect U.S. Central’s large portfolio of mortgage-related securities to further decline in value," said Robert Hoban, the S&P analyst responsible for the downgrade. "Earnings and capital measures already are under pressure."
U.S. Central is the corporate credit union for the nation’s corporate credit union network and manages more than $45 billion of credit union funds.
U.S. Central told its members this week it lost $38 million last year from write-downs on its huge mortgage-backed securities portfolio, and is exposed to at least $96 million in losses from the declining mortgage market.
Among the problems are U.S. Central’s exposure to an off-balance sheet asset-backed conduit it created and was forced to buy back from its investors last year. The ABCP conduit has an unrealized loss of $31 million, which U.S. Central hopes to amortize over the remaining seven years on the securities.
The losses are expected to result in a 50% decline in U.S. Central’s earning for 2007. U.S. Central said it won’t have an audited financial report until into April.
NCUA said yesterday it is closely monitoring conditions at U.S. Central. especially because of the crisis in the mortgage market. NCUA’s corporate examiners said marketable securities held by U.S. Central and other corporate credit unions are of very high credit quality. About 95% of U.S. Central's long-term marketable securities are rated AAA with the remaining 5% being rated AA, according to NCUA.
