Southwest Corporate FCU gritted its teeth and ripped theBand-Aid off all at once in its newly released April 2009financials.
The corporate said that because it had to record U.S. Centralcapital losses per NCUA instruction, it decided to also adopt FASBstaff positions earlier than required, record impairment charges,recognize the impact of troubled monoline insurers and take anadditional Lehman Bros. write-down.
Southwest Corporate Chief Financial Officer Melissa Wardell saidshe didn't have any communication with other corporates regardingthe decisions to early adopt FASB rules. U.S. Central and WesCorpled the way in adopting the rules early, and other retailcorporates have announced they've followed suit since.
For the month of April, the corporate turned a $9.8 million netprofit. When the effects from investment losses and rule changesare figured in, however, Southwest was left with $1.3 billion inaccumulated other comprehensive losses as of April 30.
The new FASB rules spurred adjustments to year-end 2008 financials,swelling Southwest's month-end report far beyond Aprilnumbers.
Included in the financial reports was a 2008 year-end adjustmentthat resulted in a $624 million net loss. Of that, $480 millionwere OTTIs due to losses on mortgage-backed securities, $127million from U.S. Central-related losses and an additional $10million write-down on Lehman Bros. corporate bonds, now valued atonly 20%.
Because the revised 2008 numbers are still based on previous FASBpositions, Southwest will reverse out $300 million in noncreditlosses as of March 1. The end result will be a $180 million netwrite-down in mortgage-backed securities, leaving the investmentportfolio in better shape than the year-end $480 OTTIsuggests.
That being said, some of the write-downs were the result ofinvestments backed by monoline insurer Syncora Guarantee, The NewYork Insurance Department announced it would suspend the insurer'sclaim payments, effective April 29, unless Syncora restoredregulatory surplus by June 2. Southwest recorded OTTIs onsecurities backed by Syncora as a result.
Though it assured members that three other monoline insurers willcontinue to meet future obligations, Southwest also acknowledgedrecording OTTIs on investments backed by the New York-basedFinancial Guaranty Insurance Co., which represents about 22% ofSouthwest's insured investments.
“Southwest Corporate has placed a 70% reliance on FGIC for futureinterest and principal shortfalls,” the corporate wrote infinancial statement notes. “Even though FGIC is currently timelypaying 100% of all principal and interest claims, all three ratingagencies have withdrawn external ratings for FGIC.”
Remaining insurers FSA, Ambac and MBIA are also currently payingprincipal and interest claims timely, and Southwest said itcurrently believes they will continue to do so. However, thecorporate cautioned members that further deterioration amonginsurers could result in additional OTTIs.
As of April 30, Southwest reported a 4.08% capital ratio, below theNCUA's minimum of 5%. However, per temporary NCUA regulations,Southwest reports its November 2008 capital ratio, which was6.46%.
Southwest said it won't complete its year-end audit until U.S.Central releases its own audited 2008 financial statements, whichare due in mid-June.
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