Year‐to‐date through September, net losses totaled $1.3 billion. The losses in 2009 are the result of OTTI charges, which totaled $1.3 billion through the first nine months.
U.S. Central is heavily invested in non-agency residential mortgage backed securities and asset backed securities – 90 percent of its securities portfolio.
Moreover, the quality of its securities portfolio has declined. At the end of 2008, 7.4 percent of its portfolio was below investment grade. As of the end of September, 37.3 percent of its investment portfolio was not investment grade.
As a result of OTTI charges recorded in 2008 and the first nine months of 2009, U.S. Central’s retained earnings were fully exhausted, all paid-in capital was fully depleted, and membership capital shares were depleted by $1.1 billion (88.7 percent) as of September 30, 2009.
The additional losses will spur another round of capital adjustments for retail corporate credit unions, and in turn, some natural person credit unions will have to recognize further impairments to their investments in retail corporate credit unions.
Below is U.S. Central’s balance sheet. (Click on the image to enlarge).
It would seem to me that the losses at US Central and Wescorp were to be expected. Both appeared to chase the illusive yield genie. I fear it will only get worse before any improvement begins. Other credit unions and banks that invested in only Agency securities managed to be very well.
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