Members United, Southwest Corp Will Take U.S. Central Hits in July
The $8.4 billion Members United reported an $81.9 million OTTI for June, as the corporate's quarterly securities review revealed additional credit deterioration in its securities portfolio. The investment loss produced a $79.3 million net loss for the month.
U.S. Central's $470 million second-quarter net loss announcement a few hours later drained another $81 million. Assuming no additional OTTIs within Members United's own investment portfolio, after both sets of losses have been applied, Members United's MCS accounts will have been depleted by 43%, leaving just $273 million to guard against future losses.
Despite providing the estimates along with June's financials, the Warrenville, Ill-based corporate said it will wait until July month-end statements to apply U.S. Central-related capital impairments.
The failure of two monoline insurers, FGIC and Syncora Guarantee, contributed to Members United's investment losses. Members United also warned that Ambac and MBIA, which provide credit enhancements to a greater percentage of its investment portfolio, "have experienced ratings downgrades and their credit spreads are trending unfavorably."
Liquidity is stable, with Members United reporting only $583 million drawn from more than $6 billion in available credit.
The $8.8 billion Southwest Corporate had rebounded a bit in June after May's financial reports, which included a $190 million OTTI and $127 million in U.S. Central losses. May's losses left member capital account balances with only a $13.7 million retained earnings buffer.
Southwest Corp had gained back $3.6 million in retained earnings as of June 30 despite a less favorable Libor-Fed funds margin and June's recording of $889,000 in NCUSIF recapitalization costs. However, the positive news was short-lived, as U.S. Central's June losses will mean another $67.5 million hit for the Plano, Texas-based corporate. It will wipe out retained earnings and take an estimated $50 million from MCAs. A Southwest spokesman said the corporate will record the losses on July financials.
Unrealized losses increased during the first six months, up to an aggregate $1.35 billion as of June 30. Comparatively, Southwest Corp recorded $811 million in unrealized losses as of Dec. 31, 2008. Mortgage-backed securities were responsible for the majority of the increase, though asset-backed securities also showed considerable credit deterioration.
Liquidity is under control, with $3 billion plus in the bank in the form of cash and overnight shares at U.S. Central. Southwest Corporate had no borrowings outstanding as of June 30 and maintains a $1.15 billion line of credit with the Federal Home Loan Bank of Dallas and a $731 million line with the Federal Reserve.