TALLAHASSEE, Fla. — Turns out, the financial crisis has brought one small glimmer of good news to corporate credit union balance sheets.
Greg Wirthmann, senior vice president and chief investment officer at $3.5 billion Southeast Corporate Federal Credit Union, said he's anticipating third-quarter year-to-date income of $8.3 million, compared to $3.8 million YTD for same period last year.
The source? Monster spreads between the LIBOR and the Fed funds rate, as the corporates typically index overnight liabilities to the Fed, Wirthmann said. The Fed's decision today to lower its rate to 1.5% means a 250 basis point differential between Fed funds and today's six-month LIBOR rate. The normal spread is around 15 basis points, though it's averaged more than 50 basis points so far this year.
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Wirthmann said he and his team anticipated the Fed would start reducing rates early and shifted assets accordingly to take advantage. Southeast isn't the only corporate leveraging the spread; Wirthmann said he anticipates most corporates will end the year with strong earnings.
An extra $4.5 million in revenue doesn't begin to offset nearly $114 million in year-to-date unrealized securities losses on Southeast's balance sheet, nor does it remedy similar situations at other high-profile corporates. Still, the boost will provide Southeast, and other corporates, with a net income cushion for third-quarter 2008.
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