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The $1.3 billion Constitution Corporate Federal Credit Union is still operating with its own management and board but under the “close supervision” of the NCUA because investments losses have depleted all capital and then some.The Wallingford, Conn.-based corporate’s third-quarter financial statements, released Nov. 6, show a $2.4 million deficit that both the corporate and the NCUA say is guaranteed by the NCUSIF.Fortunes have changed drastically in the past nine months for the Constitution, which had $67 million in member capital shares as of Dec. 30, 2008. After accounting for U.S. Central FCU’s losses and its own second-quarter 2009 securities impairments, roughly $18.5 million in MCS remained as of Aug. 31.According to Constitution Corporate Executive Vice President Bill White, September’s capital depletion resulted from a $15.5 million OTTI charge for the third quarter and full recognition for depletion purposes of all remaining U.S. Central capital, in the amount of $6.6 million.Net loss as of Sept. 30 year-to-date is $77.4 million, a $15 million increase from August’s $62.5 million year-to-date net loss.NCUA spokesman John McKechnie said he can’t discuss “specific supervisory matters,” but he did acknowledge that the regulator was “closely supervising the institution” and working with management to continue safe operations and uninterrupted service to members.“There are potential cost implications whenever any credit union has a negative capital position,” McKechnie said. “NCUA’s supervision approach is to pursue a long-term, least-cost resolution strategy. This can include allowing an institution to continue operations if it makes economic sense to do so.”Constitution said it will continue to provide uninterrupted service to members, including the payment of all dividends on deposits. White denied a merger with another corporate is in the works, saying instead that the corporate is working with the NCUA to achieve “a long-term, least-cost resolution strategy.”White declined to speculate on future losses.While Constitution no longer carries risk of future U.S. Central-related losses, according to previously released communications regarding its investment portfolio, future performance is questionable. In August, when Constitution impaired capital after its second-quarter investment review, CEO Bob Nealon told members, “While Constitution has not yet had a credit loss, it is projected that credit losses could begin occurring as early as the fourth quarter of 2009.”Nealon also said in August that the corporate’s investments were paying principal and interest. However, repayment had, in most cases, been extended. And, in select cases, full repayment is unlikely. Like all investors adhering to GAAP, Constitution’s losses are based on forecasts of future performance. Nealon cautioned that cash flow projections “are highly judgmental based on a number of varying assumptions.”The corporate communicated its latest bad news to members on Nov. 6 in anticipation of the public release and went over the situation again in a member meeting via Webinar on Nov. 9, White said. One of the primary topics was the NCUSIF guarantee of the $2.4 million accumulated deficit.–handerson@cutimes.com

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