Monoline insurer Ambac's forced restructuring could cost corporate credit unions as much as $400 million in new OTTIs.
U.S. Central FCU said action last month by the Wisconsin insurance commissioner to take control of Ambac's residential mortgage-backed securities guarantees caused it to lose an additional $274 million in 2009. The new OTTI is the result of a reduction in Ambac's ability to pay on guaranteed bonds from 80% to 25%. U.S. Central had the highest Ambac exposure among corporates, worth a par value of $1.244 billion. It had previously recorded $142 million in Ambac-related OTTIs before the restructuring.
Other corporates with large investment portfolios-Western Corporate FCU, Members United FCU and Southwest Corporate FCU-could stand to lose an additional $125 million combined if their portfolios respond the same way U.S. Central's did.
NCUA spokesman John McKechnie said WesCorp's Ambac-insured securities have a current face value of $293 million. The San Dimas, Calif.-based corporate will announce $25.4 million in new OTTIs on April 23 related to Ambac's restructuring, he said.
As of Feb. 28, the book value of Member United's Ambac wrapped securities was $315 million. Based on losses suffered by U.S. Central and WesCorp, OTTIs could range from $25 million to $68 million. Members United President/CEO Joseph Herbst warned members that the forced restructuring would have a significant impact on Ambac's ability to pay and could result in additional OTTI for the Warrenton, Ill.-based institution
Southwest Corporate FCU reported a par value of Ambac wrapped securities of $205 million as of Feb. 28. That could result in as much as $44 million in OTTIs for the Texas based corporate.
The new round of losses for U.S. Central reduced the value of the NCUSIF $1 billion capital note to $395 million as of Dec. 31, 2009.