Fitch affirmed the ratings of the $3.3 billion Central Corporate CU, the $1.8 billion Eastern Corporate FCU, the $846 million First Corporate CU and the $3.1 billion Mid-Atlantic Corporate FCU.

Constitution, Members United and Southwest are all expected to take near-term losses, Fitch said in its ratings releases, although earnings and reserves should absorb them. Members United and Southwest had considerable Lehman Bros. exposure, $45 million and $49.5 million, respectively. Ken Ritz, senior director of Fitch's banking group, said he expects both corporates "will take some charges that will impact capital" as a result.

However, the decision to downgrade wasn't purely based on the unavoidable losses, Ritz said. Instead, the losses combined with the potential for more prompted the action.

In fact, shortly after the Fitch release, Southeast issued a statement to members saying the likelihood of any material losses is "extremely remote," and Fitch's concerns may be overstated.

"We believe Southeast will have more capital after the current crisis has passed than it had when the crisis began," President/CEO Bill Birdwell said in the statement.

Southwest, Constitution and Members United also sent messages to members regarding the rating actions. All stressed the positive messages in the Fitch reports, including reassurances of ample capital and liquidity.

Affected corporates have also shifted member communication into overdrive. Southwest has been crisscrossing Texas, meeting with members face-to-face and will address the subject again during its economic forum on Oct. 28. Constitution now sends important member communication from President/CEO Bob Nealon's own e-mail address, rather than a general one. Members United launched a financial transparency center section on its Web site (www.membersunited.org) that makes it easy to find the corporate's most recent financials, risk profile and communication to members.

Ritz stressed that he still views all rated corporates as high-quality credit companies, including those that were downgraded.

"However, there is still a risk of loss," Ritz said. "The magnitude of that loss is hard to determine, but it could be enough to impair capital to the extent where it is no longer appropriate to assign such high ratings."

Ritz said despite the downgrades, only the highest rated institutions in the country carry A+ ratings, including most of the country's largest banks.

"All of them will stay well in excess of regulatory capital minimums," Ritz said, "and if they were going anywhere near below that level, we wouldn't be having a conversation about A ratings."

Ritz seemed surprised to hear some natural person credit unions may be concerned about the downgrades and said credit unions should keep the losses in perspective.

"Corporate members–natural person credit unions–have dealt with very highly rated companies for years and even with a few of these downgrades, they still do," Ritz said.

In fact, Ritz said it's possible the four could return to their previous ratings. In its releases, Fitch noted that the dislocation of the securities market has caused unrealized losses to overstate the true risk to corporates. And, Ritz said it's "entirely possible" Southeast may never have to write down any of its investments though he said the Tallahassee-based corporate has "certain security holdings we're concerned about."

Fitch doesn't rate corporates on a strictly scheduled basis, preferring instead to wait until an event prompts an updated look. Ritz said he doesn't have the next corporate review date in mind, nor does he have plans to review U.S. Central's ratings. U.S. Central is rated by Fitch but wasn't included in the Oct. 16 review. Western Corporate FCU is not rated by Fitch.

FirstCorp, CenCorp, EasCorp and Mid-Atlantic all had their long-term IDR AA-, short-term IDR F1+ and individual A/B ratings affirmed. The Fitch releases reported that neither Mid-Atlantic nor EasCorp have exposure to subprime or Alt-A mortgage-related securities and have minimal exposure in other securities.

FirstCorp does have some moderate subprime exposure, and CenCorp's securities have been affected by the unfavorable market. Both pose some risk, the reports said, but not enough to warrant any ratings action.

Mid-Atlantic President/CEO Jay Murray said his corporate is unlikely to experience any downgrades or write-downs thanks to a conservative investment philosophy and limited NCUA authority.

More than two-thirds of Mid-Atlantic's investments are with U.S. Central, with the balance of the portfolio mostly in bank deposits, corporate notes and some asset-backed investments. Mid-Atlantic's relatively small member credit unions don't demand investment derivative products, so it contracts with U.S. Central's CU Investment Solutions to provide investments more complicated than certificates.

Because it has dodged the unrealized losses plaguing other corporate balance sheets, Mid-Atlantic is ironically experiencing its best year ever. As of Sept. 30, the $3.1 billion corporate had already racked up more than $10 million in net income. Capital is strong, too, currently at 8.55%.

"It's a strange world that we're having such a good year even though the world outside of us is so shaken," Murray said.

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