LEDYARD, Conn. — Members United Corporate Federal Credit Union CEO Joseph Herbst told attendees at the corporate's Economic Forum here that unrealized losses are just that.
Because corporates' No. 1 job is to provide liquidity, Members United lists all of their securities as available for sale for accounting purposes, when in fact nearly all are held until maturity. He said if Members United had actually classified the securities as held to maturity, it would be reporting no unrealized losses right now.
The concern with unrealized losses really only comes into play when they must be sold, which Herbst said he did not foresee at this time. The Members United portfolio currently is reporting $880 million in unrealized losses, according to the CEO, but that figure has leveled out over the last couple months.
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He acknowledged that the current market dislocations have created a vast gap between economic value and the market value of securities. "Consequently, it's causing a big difference in unrealized losses," he told participants. Herbst raised the issue of the negative watch issued against Members United by Fitch on May 30. He explained that Members United has had some unrealized losses, but it is more of an accounting term rather than an indication of any actual problems in the portfolio. Members United has maintained its "AA-" rating from Fitch.
Herbst also emphasized that Members United and other corporates do not make their investments based on ratings alone and that Members United had actually declined to invest in some "AAA" securities, which are now rated much lower. Members United has no impairments right now. Herbst said the underlying credit quality is still there and the corporate will just ride out the current economic crisis. Even after all the downgrades, nearly all of Members United's portfolio is still "AAA," he said, and it is now a member of the Federal Home Loan Bank of Chicago, which has provided $4 billion in available liquidity if needed "so there's not concern about having the sell those bonds."
"Corporate credit unions were put on the earth to insulate the credit unions from the marketplace," he said. Without corporates, the natural person credit unions would have to deal with the unprecedented market environment on their own.
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