Corporate Losses Have Not Yet Reached the Bottom
Western Corporate FCU's investments are performing worse than previously estimated by the NCUA and Clayton Holdings, according to new OTTIs recorded for March.
The permanent impairments were prompted by increased loss projections, said NCUA Director of Congressional and Public Affairs John McKechnie.
"This stems from deterioration in actual loan performance, as well as projected deterioration in future conditions," he said about WesCorp's March 2010 financial report, which included $49 million in new OTTIs. Private label residential mortgage-backed securities were responsible for $34.4 million worth of the new credit losses.
Actual realized losses totaling $76.5 million were also incurred in March, but according to WesCorp's financial report, the losses have no impact on the corporate's financial statements because they were already recognized as credit losses in prior OTTIs.
Nearly $50 million in new credit losses, in addition to actual realized losses, means the market value of corporate legacy assets is still a moving target, and it's moving south.
Before monoline insurer Ambac's forced restructuring prompted a wave of new corporate OTTIs as of Dec. 31, 2009, actual confirmed corporate losses were $302 million as of year-end. Those numbers were in line with credit-loss projections completed by corporates in early 2009, McKechnie said.
However, subsequent quarterly loss projections increased throughout 2009 and into 2010 independent of Ambac-related losses, suggesting a bottom has not yet been reached, he said.
U.S. Central FCU's restated fourth-quarter 2009 financials, made public April 21, stated the corporate recorded $772 million in new OTTI charges that quarter. Of that, $416 million were Ambac related, leaving $356 million worth of deterioration from other factors.
Members United Corporate FCU has not yet made public its investment losses for fourth-quarter 2009 or first-quarter 2010. McGladrey & Pullen is still reviewing the books, according to incomplete March financial statements posted online on April 26. The $8.5 billion corporate said it expects to record new OTTIs when year-end 2009 numbers are released next month, but losses from both quarters combined will not exceed the $151 million in capital still remaining on the books.
In its unaudited December 2009 financial statements, Southwest Corporate FCU reported $84 million worth of OTTIs on its mortgage-backed securities portfolio and said the new losses reflected "continued increases in loss projections over the second half of 2009." Those figures do not include the recent decrease in expected premium payments from Ambac.
The $10.4 billion Southwest Corporate has not yet released first-quarter 2010 financial statements.
McKechnie said the NCUA Board has not yet made any determinations about the size of future assessments but is planning a review of NCUSIF levels sometime this fall.