WASHINGTON — The corporate balance sheet saga remained alive and well in December following two big NCUA announcements affecting the aggregate credit union system.The Credit Union System Investment Program allows corporates to tap the Central Liquidity Facility and the borrowing capacity of natural person credit unions from the CLF in order to access a cheaper liquidity source. But the program, announced Dec. 12, will not pay off the bad investments that have plagued corporates this year.That same day, the NCUA also announced that it would allow U.S. Central to convert membership capital accounts to a new paid-in capital instrument.Membership capital accounts, which are not insured, are available to cover losses that exceed retained earnings and paid-in capital. The instrument, PIC2, is considered Tier 1 capital by debt ratings agencies and will enhance U.S. Central's credit ratings, the agency said."Converting callable MCA funds to PIC2, Tier 1 capital is an important facet of broader efforts to maintain robust debt ratings for U.S. Central," said NCUA Chairman Michael Fryzel. "This represents the latest in a series of prudent steps to preserve credit union system-wide stability and financial health during these times of market dislocation."The announcements follow a year of criticism for the corporate system, particularly the larger corporates, which have had a tough year convincing members and the media that they're safe and sound following several knocks by Fitch Ratings and Standard & Poor's.On March 18, Fitch downgraded U.S. Central FCU's issuer default rating from AAA to AA+, and rumors have swirled about the stability of the corporate system ever since. Fitch placed Members United Corporate FCU on ratings watch negative May 31, followed by Southwest Corporate FCU and Constitution Corporate FCU on June 13. All three institutions still maintain AA- long-term IDR.An Aug. 11 Wall Street Journal article, "Mortgage-Market Trouble Reaches Big Credit Unions," stirred the pot further when corporate investment troubles were featured on the publication's front page.Then on Sept. 30, Standard & Poor's put $28 billion Western Corporate FCU and $10.3 billion Members United Corporate FCU on CreditWatch with negative implications.In October, Credit Union Times took a closer look at the financials of WesCorp and Members United, as well as $10.9 billion Southwestern Corporate FCU and $3.4 billion Southeast Corporate FCU, whose long-term ratings were given a negative outlook by S&P. (See CU Times, Oct. 15, page 1.) Concern for the four's financial condition isn't without merit. As of Aug. 30, 2008, Southwest's assets have shrunk 16% since Dec. 31, 2007, while WesCorp's and Southeast's assets have lost 15% and 12%, respectively.Members United has taken the biggest hit, losing nearly 27% of its assets since Dec. 31, 2007. However, Members United got an asset boost at year-end, skewing its loss figures. Compared to August 2007, the corporate has lost 16% of assets, putting it on par with the others.Corporates kept members 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 temporarily. Unrealized losses and some other-than-temporary impairments recorded during 2008 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.However, corporate leaders continue to insist that aside from the impaired securities, those with unrealized losses are still providing a cash flow as promised, and the vast majority will mature and pass safely off balance sheets.As of Oct. 31, U.S. Central had racked up $4.6 billion in unrealized losses for 2008, with investment values losing $800 million during the month of October.U.S. Central Executive Vice President of Asset-Liability Management Dave Dickens said despite the market-value disparity, they are still paying on par every month and to sell now would mean getting maybe 70 cents on the dollar.Not all investments are merely hampered by unrealized losses-corporate credit unions were caught up in the much-publicized Lehman Brothers bankruptcy, with U.S. Central writing off its entire $800,000 Lehman Bros exposure in September. Members United Corporate FCU had far more exposure to Lehman Bros., charging off $22.5 million in September.Members United took another $15.4 million hit on two mortgage-backed securities, and lost another $5 million in fair-value adjustments, resulting in a $40.3 million net loss for the month of September. The lousy year prompted Members United Corporate to make eleventh-hour budget cuts for 2009 that will dismiss 20% of its workforce, including former Mid-States Corporate CEO and current Members United President David A. Preter.Members United will reduce its operating budget from initial 2009 projections by approximately $10 million, coming from reduced spending on programs, infrastructure and product development, outside commitments and direct subsidies. Staff reductions will trim expenses by approximately $5 million.Following the merger between Mid-States and Empire corporates, Members United experienced rapid growth, Members United CEO Joe Herbst said. In turn, the CU built up staff to support that growth, but, Herbst noted, "that situation has changed."–[email protected]