The $9 billion Southwest Corporate Federal Credit Union announced big July month-end losses, recording impairments on both U.S. Central and its own securities investments, to the tune of $178 million.
Of that, $113 million was due to credit impairments in Southwest Corp's non-agency residential mortgage backed security portfolio. The losses were the result of Clayton's second quarter review, and represent losses experienced as of June 30, despite the July 31 entry date.
More than two-thirds of write downs were on previously impaired bonds, according to management's discussion and analysis, available on Southwest Corp's Web site. (www.swcorp.org)
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Like Members United Corporate FCU, failed monoline insurers Syncora and FGIC also contributed to the red ink. Ambac Financial Group's July ratings downgrade by S&P could be a sign of future losses for Southwest Corp: the insurer represents 42% of its monoline exposure, wrapping $126 million in non-agency residential MBS.
The Plano, Tex.-based corporate announced last month the losses were forthcoming; unfortunately, that doesn't soften the capital blow to member credit unions. Retail corporates haven't yet applied retained earnings deficits to member capital, because they're waiting for final 2008 numbers from wholesale corporate U.S. Central.
But as of July 31, Southwest Corporate has a retained earnings deficit of $160.9 million it will eventually record against $393 million in membership capital shares, roughly 41% impairment.
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