Monday, September 14, 2009

Zombie Update: U.S. Central FCU

On Friday, September 11, U.S. Central FCU, which was placed into conservatorship on March 20, 2009, released its highly anticipated audited 2008 annual report.

According to the annual report, U.S. Central FCU reported a $4.8 billion loss for 2008, quadrupling the previously announced estimated loss of $1.2 billion for 2008. The accumulated losses exceed all of U.S. Central’s retained earnings and capital; however, most of the losses, $3.7 billion, were reversed on January 1, 2009 when the unwinding of the credit-related part of 2008's OTTI occurred.

As of December 31, 2008, all of U.S. Central’s security portfolio was classified as available for sale (AFS). At the end of 2008, many of U.S. Central’s investment securities are in significant unrealized loss positions. Unrealized losses on AFS securities were $7.9 billion (see Note 4).

The annual report points out that both PIC 1 and PIC 2 (PIC stands for paid-in capital) have been depleted, along with $789.4 million in membership capital share (MCS) accounts, as of June 30, 2009 due to an additional $1.1 billion in OTTI charges. With the conservatorship of U.S. Central, MCS redemptions have been suspended (see Note 7). If there is a moratorium associated with MCS redemptions, should these accounts be reclassified as paid-in capital?

Also, the discussion associated with Note 1 is very interesting.

It clearly states that the only reason U.S. Central continues to operate is the level of unprecedented support and regulatory forbearance it has received from NCUA “in order to avoid being placed into liquidation and continue to access the debt markets.”

The note disclosed that the NCUA Board had authorized up to $3,000,000,000 of cash or non-cash special assistance to U.S. Central from the NCUSIF, including, but not limited to, a guaranteed prior undivided earnings deficit (i.e. negative retained earnings) and/or a capital note(s) in addition to the $1,000,000,000 capital note provided to U.S. Central in January 2009.

Additionally, it appears as if NCUA has no exit strategy with regard to the U.S. Central conservatorship.

On page 24 of the annual report, it states:

“The conservatorship has no specified termination date. There can be no assurance as to when or how the conservatorship will be terminated, or what U.S. Central’s business structure will be during or following the conservatorship.”

So, it seems that this zombie will be with us for a long time.


  1. I wish the author would review the financial statements for Citibank. How much of its capital came from the US Government and could it operate without that type of assistance? What is the printed/stated end-game for the US Government's ownership interest in this bank? Inquiring minds do want to know.

  2. To Anonymous:

    There was an article the other day, which stated that Treasury is exploring an exit stratey by selling part of its stake in Citigroup.

  3. Care to explain why your own organization has filed a complaint with the FDIC related to Ally(GMAC) Bank as it relates to their high advertised CD rates. Based on the criteria, Ally(GMAC)is broke and a zombie FI itself.

    If you are going to attack zombie financial institutions, lets discuss how many of the FDIC's 416 troubled institutions are still allowed to exist because of being classified as "too big to fail" or the fact the FDIC is also broke and can't afford any more failures.



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