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Corporates Market not affecting ability to support CUs
WASHINGTON (8/15/08)--Although market disruptions have affected corporate credit unions, along with virtually all other types of financial institutions, those disruptions have not affected corporate credit unions' ability to support the industry, officials said this week. Tuesday's edition of the The Kansas City Star reported that although U.S. Central FCU has seen a sharp drop in the value of its mortgage-backed securities, those losses are unrealized and securities continue to generate cash flow for U.S. Central, according to Kathy Brick, chief financial officer. U.S. Central expects to recover the securities' full value. "These are high-quality performing assets. We are still receiving principal and interest payments each and every month on these securities," Brick told the newspaper. "They're still doing what we bought them to do." Some of the 26 corporate credit unions that are members of U.S. Central have reported similar declines in mortgage securities' values. If U.S. Central sold its mortgage securities now, said the paper, it would receive $2 billion less than it paid for them. However, U.S. Central has $2.6 billion in regulatory capital and abundant and deep sources of liquidity, making it unnecessary to sell any of the securities, Brick said. Because of the turbulent market, U.S. Central considers the drop in prices for securities to be temporary. The Star noted comments by the National Credit Union Administration, which said the corporate credit unions' liquidity position is strong. In the past, U.S. Central routinely sold securities to meet its short-term funding needs, but three years ago, it began developing alternative sources of immediate funding. Now, it can borrow from the Federal Home Loan Bank; use lines of credit at commercial banks; and issue its own commercial paper. Brick noted that U.S. Central is, "highly liquid. This just hasn't been an issue for us." Brad Miller, executive director of the Association of Corporate Credit Unions, told News Now yesterday that the corporates are diligently monitoring market conditions. "The corporates will continue their ongoing surveillance of the securities they own to ensure that their portfolios continue to perform throughout changing market conditions," he said. Miller added that NCUA continues to provide prudent oversight, and the agency has stated it is confident that corporates are taking the appropriate measures to weather the current market environment. He also pointed out that independent, third-party analysis confirms that mortgage-related securities held by corporates continue to "perform within original expectations and that full cash flow--principal and interest payments--will be received." Corporates have the willingness and ability to hold these securities until the markets recover or mature," Miller said. "For that reason the accumulated unrealized losses may never be realized in any material amounts." Miller also noted that all corporates within the Corporate Network continue to "maintain ample sources of liquidity to support the needs of their members." “This includes both advised and committed lines of credit from a vast array of financial institutions, member deposits, and cash flows being received as expected from their investment portfolios," Miller said.
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