Members United Retained Deficit Will Deplete All PIC and 40% MCS
The $7.7 billion institution will eliminate its retained deficit in September, which will deplete 100% of member paid-in capital and 40.2% of membership capital shares. Members United cited the NCUA's Rules and Regulations Part 704.2 and Letter to Credit Unions No. 09-CU-10 in the decision and said it will use its Aug. 31 retained deficit figure of $277 million.
Chief Financial Officer Todd Adams said the depletion entries will be reflected members' September statements.
Like most corporates, Members United waited for U.S. Central Federal Credit Union to finalize its audit before applying the retained deficit to member capital, as U.S. Central losses account for about 40% of the $578 million lost from retained earnings since Nov. 30, 2008. Much of the rest is due to other-than-temporary-impairments from Member United's investment portfolio.
Members' financial release included a graph that charts accumulated other comprehensive income, or unrealized losses, and cumulative OTTI. The losses peaked in March 2009, but thanks to improved market liquidity, Members United's investment portfolio has shed $192 million in unrealized losses since June. The credit union also reported a $2.4 million net profit for August.
However, the corporate braced for more bad news may come in about a month after it receives its third-quarter investment review.
"While home values and unemployment trends appear to have stabilized in August 2009, the fact that they did deteriorate since the last quarterly investment review means that it is likely that some additional OTTI will surface from the study being performed as of Sept. 30, 2009," the corporate said.
"If meaningful OTTI develops at either U.S. Central or Members United or if the audit of Members United requires us to impair the remaining $74.6 million investment in capital shares at U.S. Central, the resulting entries could create a new retained deficit that would require further depletion against a portion of the remaining membership share balances."