LENEXA, Kan. – U.S. Central's October 2008 financials were a mixed bag, with the corporate riding the crest of the Fed fund/LIBOR rate spread, posting a net income of $30 million for October, and increasing year-to-date earnings to nearly $80 million.
However, the corporate also reported $4.6 billion in unrealized losses, with investment values losing $800 million in just one month. Securities backed by credit cards, auto and student loans accounted for $600 million of the adjustment, with the balance from non-agency residential mortgage backed securities.
Executive Vice President of Asset Liability Management Dave Dickens said despite the market value disparity, there are still 350 million reasons to keep those investments on the books.
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"They are still paying on par every single month to the tune of around $350 million, so what would be the economic reason to sell those loans at 70 cents on the dollar? It makes more sense for us to continue to receive those payments every month, at par, until they're paid off," Dickens said.
However, as the investments mature, U.S. Central isn't replacing them with new securities. Instead, the corporate is allowing assets to shrink, providing an extra layer of protection to its capital ratio, Dickens said.
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