New losses at the $9.5 billion Members United Corporate Federal Credit Union will leave the struggling corporate hanging by its fingernails, requiring it to deplete "substantially all" of its remaining capital, according to new financial reports released May 18.
The Warrenton, Ill.-based cooperative broke the news when it released its April 2010 financial reports and 2009 year-end audit, revealing $138 million total in new OTTIs.
Partially offset by retained earnings, the resulting $130 million earnings deficit will be eliminated using remaining member capital share accounts May 28, leaving $4 million total capital. That represents a 97% depletion of MCS and a 100% depletion of paid-in capital since Aug. 30, 2009. In December 2007, Members United had $885 million in total capital.
December 2009's investment portfolio review was more damaging than April 2010 review, representing nearly $117 million worth. The December losses include an OTTI of $87.1 million due to monoline insurer Ambac's forced restructuring. Members United is placing a 25% repayment reliance upon the struggling Wisconsin firm, saying in notes that accompanied the 2009 review that it expects Ambac to resume paying claims in October 2010 but will only pay 25% of expected cash flows.
"The remaining 75% represents a probable loss estimate and has been recorded as an OTTI," the corporate said in the audit notes.
Year-end 2009 numbers show a $253.5 million net loss and a drastic turn of events from December 2008. During 2009, Members United earned just $142.4 million in interest income, compared to $433 million in 2008. It also paid out just $93.5 million in dividends, compared to $312 million the year before. Borrowings decreased from $2 billion as of 2008 year-end to $246 million as of Dec. 31, 2009. Noninterest expense decreased from $55.6 million in 2008 to just over $37 million in 2009.
Members United owned 153 securities as of Dec. 31, 2009, with a total par value of $2.4 billion, that have been downgraded below a credit rating of BBB. It has requested permission from the NCUA to continue to hold 151 of these securities to maturity. So far, it has received the green light for 85 of them and expects to receive permission for the remaining 68, management said.
April's losses represent additional deterioration in the quality of Members United's investment portfolio. Like other corporates that hold similar securities on the books, Members United is still experiencing new credit losses.
As of April 30, 2010, the total fair value of assets was $9.5 billion. Cash and cash equivalents, which have increased over the prior year to represent 43% of total investments, plus overnight deposits at U.S. Central, totaled $4.1 billion. Fair value of marketable securities represented $3.5 billion of total assets, loans to members represented $0.7 billion, term deposits at U.S. Central totaled $1.1 billion and accrued income and other assets totaled $100 million.
Low loan demand and continued share growth is providing Members United's members with plenty of liquidity, and the corporate's liquidity position also remains good with more than $4 billion in cash on hand as of April 30. Management wrote in April's financial reports that seasonal liquidity draws did begin as usual around April 15.