When retail corporates officially told members how badly U.S.Central's second-quarter losses had damaged their own capitalcoffers, they received little response.
The $1.4 billion First Corporate Credit Union officially shared thenews of its 63% PIC impairment with members on Aug. 4.President/CEO Pete Pritts reported at the end of the followingbusiness day none of his 56 members had called or e-mailed him todiscuss it.
Pritts said each time U.S. Central updates its loss estimates,FirstCorp relays the information to its own members and includesthe impact the figures will have on the Phoenix-based corporate'smember capital.
“The first time, we had to notify members all of our member capitalat U.S. Central had eroded, but each time thereafter, the losseswere smaller,” Pritts said. “Members were making positive commentsthat the numbers were getting better with each call, butunfortunately, this time they got worse.”
He said even though the news was bad, members didn't contact him toexpress concern because “they know the portfolio is impaired andknow we all have to work through it.”
Additionally, Pritts said because FirstCorp members are located inthe hard-hit sand states, they know firsthand how job losses andhome values are affecting mortgage-backed securities.
Georgia Central Credit Union President/CEO Greg Moore told hismembers on July 31 that U.S. Central's losses will trickle all theway down into their own member capital investments. Georgia Centralowned $23 million worth of U.S. Central paid-in capital, which hasbeen completely wiped out, and $55 million in member capitalshares, now 63% impaired.
The cumulative $58 million loss consumes $42.5 million in reservesand undivided earnings, $13.5 million in paid-in capital and $1.9million worth of member capital shares at Georgia Central. Mooresaid his members have been very supportive, despite the news.
Communication is also a cornerstone of member relations at GeorgiaCentral. Moore said he's written e-mails, hosted town hall meetingsacross the Peach State, presented a due diligence Webinar fordepositors and has taken the stage at other meetings wheneverpossible, including league chapter meetings and local councils, todiscuss topics like corporate stabilization and U.S. Centralexposure.
“Most valuable, though, is one-on-one interaction, whether throughtelephone contact or in person,” Moore said. “In general, wemaintain a strong presence in the credit union community, and theface-to-face communication that takes place in these
settings is vital.”
Corporate One Federal Credit Union President/CEO Lee Butke'smessage, delivered to members in a letter dated July 31, was amongthe easiest to deliver in the corporate network: his corporate'sU.S. Central exposure was entirely covered by retainedearnings.
Despite the additional $16.2 million bite, Butke reminded memberstheir reserves and undivided earnings can absorb a 100% U.S.Central capital write-off with $50 million in RUDE to spare.
Lynchburg, Va.-based VACORP Federal Credit Union President/CEO JimHansen told his members their MCS will “likely be depleted by 28%”as a result of U.S. Central's second-quarter losses. However,Hansen said he doesn't anticipate recording the capital impairmentuntil U.S. Central completes its audit and the NCUA confirms theaccounting methodology.
Pritts said he's eagerly anticipating U.S. Central's audited 2008numbers, saying the numbers will “remove some of the uncertainty”regarding FirstCorp's capital restoration plans.
“I'm not in the position to ask my members for more capital,”Pritts said. “There's just too much uncertainty, and the newregulations will define capital requirements.”
Pritts said he has confidence the unaudited 2008 numberscommunicated so far by U.S. Central will be “pretty close” to whatthe final audited statements will show. However, he said thepending figures still present an unknown.
Moore echoed Pritts, saying he wants to have U.S. Central's auditedstatements “in hand” and review new NCUA regulations beforereplacing capital.
“I can say with confidence that there is a future ahead for GeorgiaCentral to meet the needs of its members, even if we don't knowexactly what it will look like today,” Moore said.
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