LEDYARD, Conn. — While the credit union community and others are experiencing the effects of an unprecedented market, Members United Corporate Federal Credit Union CEO Joe Herbst assured that the corporate was weathering the storm just fine.
He acknowledged that the current market dislocations have caused big differences in economic value versus market value of investments. "Consequently, it's a causing a big difference in unrealized losses," he told attendees of the corporate's Economic Forum. Herbst explained that Members United has had some unrealized losses, but it is more of an accounting term rather than an indication of any actual problems, despite the negative watch issued by Fitch last Friday.
Herbst also emphasized that Members United and other corporates do not make their investments based on ratings alone and that Members United had actually declined to invest in some AAA securities, which are now rated much lower. Members United has no impairments right now. Herbst said the underlying credit quality is still there and the corporate will just ride out the current economic crisis.
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Because corporates' No. 1 job is to provide liquidity, Members United lists all their securities as 'available for sale' for accounting purposes, when in fact nearly all are held until maturity. He said if Members United had actually classified the securities as 'held to maturity,' they would have no unrealized losses reported right now. The concern with unrealized losses really only comes into play when they must be sold, which Herbst said he did not foresee at this time.
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