Corporate members have been well-informed regarding the source of those asset slides: declines in investment values. Namely, private-label mortgage-backed securities that corporates successfully invested in for years until the mortgage meltdown rendered them worthless, albeit perhaps temporarily. Losses threaten member equity, too, worrying members and frustrating corporate financial managers forced to record losses in a market where values are volatile and have few, if any, reliable benchmarks.

As of August 2008, Southeast Corporate was closest to the NCUA's capital ratio minimum of 5%, at 5.6%. Comparatively, August 2008 financials showed Southwest at 6.19%, WesCorp at 6.58% and Members United at 7.03%.

How do those numbers compare to normal? Though some natural person credit unions maintain capital up in the 20% and higher range, corporate capital ratios have held fairly steady over the past year, an indication that these aggregates are still sitting on solid ground. Southeast's capital ratio has vacillated been between 5.5% and 6.0% for years and is only slightly lower than its 5.65% capital ratio in August 2007. WesCorp has actually increased its capital over the past year, up from 6.33% in August 2007. Members United has lost the most, sliding from 8.14% one year ago but, it also started out higher than the others.

Liquidity doesn't appear to be an issue. Most corporates have added additional sources of liquidity in the past year, but total borrowed funds aren't up much at all. WesCorp's total borrowed funds have only increased 3.4% since August 2007, for example. No corporates reported any reductions in lines of credit, and all have sources available they haven't tapped yet, like U.S. Central, the Federal Home Loan Bank, federal funds, in addition to the continued ability to raise member funds. Members United, for example, had $7.8 billion in liquidity lines as of Aug. 31, 2008, but had only drawn upon $1.8 billion.

And, while headlines question the effectiveness of the recent bailout package, and jaws dropped when Lehman Bros. failed, the financial outlook for corporate credit unions doesn't seem all that bad.

Private-label mortgage-backed securities, the snag on most corporate balance sheets, carry a relatively short average weighted life of two to three years. For corporates that saw the subprime mess coming early and switched investment strategies, many of those investments have dwindled down to near zero.

Southeast Senior Vice President and Chief Investment Officer Greg Wirthmann said his team began reducing exposure to private-label MBS in late 2005. At the time, approximately 31% of Southeast's investment portfolio was private MBS, but that number has been reduced to 14% today.

Wirthmann said he's only buying top-tier, nonmortgage asset-backed securities with weighted lives of less than one year. The only longer-term investments being purchased by Southeast these days come from U.S. Central and government-sponsored entities.

It's a similar story at other corporates, which have moved into GSE-backed securities, as well as those with auto loans or credit cards as collateral. Loans to members have also increased.

Corporates are quick to point out that while they're purchasing different investment vehicles to avoid the market's current land mines, their standards haven't changed much or at all. Many securities that have taken hits were AA-rated or higher when they were purchased. Members United Chief Financial Officer Todd Adams summed it up, saying, "Eighteen months ago, a AAA rating essentially meant that investments were bulletproof. Today, they are still good credits, but are under stress given the economy."

One form of help for balance sheets is the potential for a temporary shift in accounting standards, to reflect a more economically based value for corporate securities holdings. The fair value of securities has taken a beating; however, all four corporates report that they have been performing as expected, providing healthy revenue streams.

That disparity is frustrating for corporate managers, because it makes financial reports appear worse than the corporate's actual financial position. Making matters worse is the complex nature of 5310 reports, which are structured differently than natural person credit union 5300 reports, making them a tough read for members, according to the corporates.

"Change in book value should be based on changes in expected cash flows, discounted at a rate that includes a reasonable long-term risk spread," said Jim Hayes, WesCorp chief financial officer. "Rather than writing securities down to an artificially depressed estimate of current fair value, the adjustment should reflect the true economic value."

The Association of Corporate Credit Unions delivered a letter to House Financial Services Committee Chairman Barney Frank (D-Mass.) October 10 that stated, "The ACCU encourages FASB to amend the definition of fair value for held-to-maturity (HTM) and available-for-sale (AFS) securities to the net realizable value of these securities. This is necessary in order to place investors in debt securities on equal footing with entities that hold loan portfolios for investment."

The letter continued, stating that the corporates' trade group believes that securitized loans should not be treated differently than unsecuritized loans when the intent and ability to hold the investments is present in both cases.

Accounting standards aren't going to help Southwest and Members United, which both have senior debt exposure to Lehman. As a result, both will be forced to take other than temporary impairments for September, as a result of Lehman's Chapter 11 filing.

Members United didn't have projected losses available as of press time, and Southwest would only speculate that at this time recovery estimates range from 30% to 80%. Members United had $45 million invested in Lehman, while Southwest had $49.5 million. In a management analysis addition to its August 2008 financials, Southwest said that "expected recovery will depend upon how quickly Lehman's is forced to liquidate securities into the current distressed market. Even at the lower end of the recovery range, Southwest Corporate's 2008 net income is expected to be strong."

Southwest isn't the only corporate expecting strong net income for year-end 2008. Corporates have been raking in a few million extra this year off the differential between the fed funds rate and the Libor. The spread, which typically runs around 15 basis points, has averaged at least 50 basis points in 2008.

Corporates said they have used that extra income to boost reserves.

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