U.S. Central Tells Member Corporates to Write Down Capital

In its May 1 weekly corporate update, the NCUA said seized $35 billion U.S. Central Federal Credit Union will report a $2.3 billion other-than-temporary-impairment charge when it releases its March month-end financials.The announcement made official what the NCUA had told U.S. Central members in an April 29 Kansas City-area meeting: U.S. Central losses will result in a total depletion of paid-in-capital, including the $425 million in PIC II funding corporates had just funded four months ago and a 63% hit on member capital.The agency said it will provide accounting guidance for capital holders in the form of a letter to credit unions. However, during the April 29 meeting co-hosted by the Association of Corporate Credit Unions, ACCU Executive Director Brad Miller said member corporates were given a clear directive: write down their U.S. Central capital.“All the corporates are waiting for audited U.S. Central financials,” Miller said. “It looks like those might not be ready until the end of May, but they were quite clear regarding writing down capital.”The OTTI announcement followed the completion of a private-label securities review by the Shelton, Conn.-based Clayton Fixed Income Services, which was the final number set U.S. Central needed to add to its equation of internal and third-party analysis.Also in the May 1 report, the NCUA said seasonal liquidity challenges are taking their toll on stressed corporates. Chairman Michael Fryzel said the combination of normal seasonal outflow patterns and a broadly stressed market has prompted the board to consider providing longer term funding options and other enhancements to the Temporary Corporate Credit Union Liquidity Guarantee Program.“As liquidity pressures mount from seasonal patterns, I encourage all credit unions to continue to support liquidity needs by keeping all surplus funds within the credit union system,” he said.Miller said the ACCU also is keeping an eye on corporate liquidity, adding that the conservatorship of U.S. Central and Western Corporate FCU, investment losses and lowered corporate ratings have decreased the liquidity options available to the wholesale tier. However, he said he’s “not overly concerned.”“Outflow this summer may be less than historical norms, but we still expect the overall pattern will hold,” Miller said.He added that Fryzel’s announcement of possible improvements to the liquidity guarantee program will help reinforce liquidity, and that the ACCU, the NCUA, corporates and member credit unions are continuing to “explore all avenues to generate liquidity within the system.”–[email protected]