More Corporate Losses to Be Absorbed by Credit Unions

Credit Union Journal
August 4, 2009 | COMMENTS

Corporate credit unions recently reported soaring losses on their troubled mortgage securities, which will lead to additional charges at natural person credit unions over the coming weeks and months.

WesCorp Federal Credit Union reported a whopping $538-million loss for the month of June, making a total of more than $6.2 billion of losses realized by the one-time corporate giant over the past 18 months.

Also yesterday, Members United Corporate Federal Credit Union reported a $79.3-million loss for June, caused by $81.9 million of impairment charges on its mortgage securities. But apparently the worst is yet to come, as Members United, which lost $511 million in 2008, projects future credit losses of at least $70 million.

Corporate One Federal Credit Union reported an $8.2-million loss for the first six months of the year, which it attributed to $17.1 million of charges on its mortgage-backed securities.

The three corporates and U.S. Central Federal Credit Union still have more than $20 billion in unrealized losses on their books and are expected to realize increasing losses in the coming weeks and months.

Those losses are almost all related to underwater MBSs and don't account for as much as $1 billion of corporate capital that is expected to be wiped out in the next few weeks when U.S. Central reports its long-awaited financials for 2008. Once U.S. Central reports its financials it is expected to trickle down to all the corporates and on to natural-person credit unions.

Members United reported yesterday if U.S. Central extinguishes the remaining 77% of the membership capital shares the corporates hold, it might have to deplete as much as $277.7 million of its own MCS, passing on those charges to its 2,000 credit union members.

The trickle-down in good times and bad is what distinguishes the cooperative system of credit unions, according to managers and directors.

"I guess this is what they mean by systemic risk," said David Gilbert, a director for Aberdeen Proving Ground Federal Credit Union, during NAFCU's annual convention, noting the interrelationship of the credit union system.

"I think what people lose track of is we're a mutual set of organizations," said Evan Clark, president of Department of Commerce Federal Credit Union. "For better or worse, whatever affects one, affects the other."

He predicted more charges accruing to his and other credit unions from corporate losses in the coming months. "There's going to be a lot more than that," he said of the reported losses in the corporate system.

This article appeared at www.cujournal.com and is reprinted with permission.