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.