According to the NCUA's newly released corporate securities summary, Western Corporate FCU's AAA-rated securities at the time of purchase didn't accurately reflect investment quality.
NCUA didn't provide exact numbers breaking down investment losses at either corporate, but said more than one-third of WesCorp's securities are mezzanine securities backed by Alt-A and Option ARM loans.
Based on WesCorp's $23 billion portfolio, that represents more than $7.5 billion of subordinate securities, which absorb losses before senior securities within the same bond structure.
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"Despite this support role, these securities were rated AAA (or equivalent) at purchase," the NCUA report stated. It cited Moody's estimates that the securities will lose between 20% to 30% of their original balance.
"Furthermore, many mezzanine securities are expected to take losses in excess of 50% of remaining principal due to their first loss position," the report said.
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