WALL STREET – Growing losses within the corporate network caused Moody’s Investors Service to cut its ratings yesterday on several of the biggest corporate credit unions, including U.S. Central FCU and WesCorp FCU.
The ratings service was little impressed by U.S. Central move to convert $450 million of regulatory capital to Tier One capital and was more worried about the growing unrealized losses the central bank for credit unions now has on its books, a staggering $9.6 billion at the end of November.
The Moody’s downgrades come after other Wall Street agencies, including Standard & Poors and Fitch Investors, have issued downgrades on the corporates in recent months because of the deteriorating values of the corporates’ investments.
Blaine Frantz, the Moody’s analyst in charge of the corporates, said they don’t expect U.S. Central to be realizing "anywhere near" the losses it has on its books, but the realization of even a portion of those losses could take a meaningful bite out of U.S. Central’s capital. "Capital is an issue and it remains an issue," despite the recent capital conversion, Frantz told The Credit Union Journal yesterday.
"The trend has not been positive," said Frantz. "However, we don’t think you’re going to see the actual losses come in anywhere near what they’re carrying on their books."
As a result, Moody’s downgraded U.S. Central’s long-term rating to A1 from Aa1, and placed all of U.S. Central’s ratings on review for possible downgrade.
Moody’s also downgraded WesCorp’s long-term rating to A2 from Aa3, and placed WesCorp’s long-term and short-term ratings on review for possible downgrade in the light of some $1.8 billion in unrealized losses on its investments.
The Wall Street agency also placed the commercial paper ratings for five other corporates on review for possible downgrade amid growing losses on their books: Members United Corporate FCU, Corporate One FCU, Central Corporate CU, Corporate Central CU and SunCorp Corporate FCU.
U.S. Central reported Friday that unrealized losses on its books surged almost 16% in November by $1.3 billion, after the Treasury Department announced it would not be buying illiquid assets to prop up the market for asset-backed securities. Members United reported its losses grew by another $380 in November to $1.9 billion’ and Southeast Corporate FCU reported a 24% increase in losses on its books to $176 million.
