Subprime Securities Prompt S&P to Downgrade U.S. Central Federal Credit Union Rating
- Feb 06, 2008
New York–The nonprofit company that invests on behalf of 8,400 local credit unions lost its AAA Standard & Poor’s rating after announcing a $760 million drop in the value of its subprime-related securities, Bloomberg reported Wednesday. The U.S. Central Federal Credit Union’s rating was reduced by one level to AA+. New York-based S&P may downgrade U.S. Central again if its investments decline further, said analyst Robert Hoban.”With the housing market weakening to levels not seen since the early 1990s down-cycle, we expect U.S. Central’s large portfolio of mortgage-related securities to further decline in value,” Hoban said. “Earnings and capital measures already are under pressure.”Global agency Fitch Ratings also is watching Lenexa, Kansas-based U.S. Central for any losses that might increase fees and lower savings account rates for credit union customers.Declining prices for mortgage bonds and other securities caused U.S. Central to mark its assets down by $760 million–2 percent of its total assets–last week, Executive Vice President Dave Dickens said.Because credit unions are owned by their members, the unions are highly vulnerable to home loan losses–which have already caused 100 U.S. lenders to shut down and cost some of the world’s biggest banks more than $140 billion.Founded in 1974, U.S. Central is owned by 26 regional or “corporate” credit unions, which are owned by local credit unions. Approximately 95 million members, who are also customers, own the local credit unions, according to Bloomberg.