Southwest Corporate CEO responds to WSJ article
Today’s edition of the Wall Street Journal included an article that focused on the impact of the mortgage market dislocation on several large corporate credit unions including Southwest Corporate. I would like to comment on the Wall Street Journal article as well as provide an update of our communication plans regarding the market dislocation’s impact on Southwest Corporate.
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Wall Street Journal Article
Like a similar article published earlier this summer in the American Banker, the Wall Street Journal article focused on the unrealized losses recorded by Southwest Corporate and other corporate credit unions that have invested in residential mortgage-backed securities (RMBSs). The main impact of Southwest Corporate’s RMBS investments is the balance of unrealized losses recorded within the balance sheet caption accumulated other comprehensive losses.
The overall credit quality of Southwest Corporate’s RMBSs remains high as all of our RMBS holdings are paying as expected and the overwhelming majority are rated AAA. Each month we are performing detailed credit analyses and projections on individual RMBSs as well as obtaining third party confirmation of our credit assessments. These credit analyses support our belief that the quality of our mortgage investments remains high.
The market dislocation primarily reflects a lack of liquidity in the RMBS market. In other words, there is little demand for RMBSs given general uncertainty about mortgage performance, and this lack of demand has resulted in declining values. However, our credit analyses clearly indicate that the intrinsic value of our mortgage investments remains far in excess of the reported values comprising our unrealized losses.
This overall assessment should come as no surprise to any of our members who have reviewed our previous publications and financial reports, or have listened to our webinars. The Wall Street Journal article really did not present anything new related to Southwest Corporate. We have been communicating the same facts and assessments to our members for almost a year.
Updated Communication Plans
Southwest Corporate has continually increased the level of information and the frequency of communications to our members concerning the impact of the market dislocation. We are constantly evaluating the adequacy of our information flow to our members.
In light of the increased media focus as well as the recent NCUA Letter to Credit Unions that reminded credit unions of the need for due diligence, we once again plan to expand our communication efforts with the following additional steps.
1. Increasing the frequency of quarterly financial webinars—they will now be held monthly.
2. Scheduling in-person presentations to our membership to supplement our webinars and provide the opportunity for expanded discussion. The schedule and locations of these presentations will be announced over the next few weeks.
3. Focusing on the impact of the mortgage market during the upcoming annual Economic Forum as a venue to share updated information about the impact on Southwest Corporate.
4. Providing forward-looking assessments of the mortgage market impact during our upcoming webinars and in-person meetings.
Conclusion
Southwest Corporate’s consistent message throughout this market event has been that our asset quality remains high despite the low reported “fair values” of our securities. We believe those reported values are a reflection of a dramatic lack of liquidity in the mortgage-backed securities market and do not reflect the underlying value of the assets. We believe any losses we realize will be manageable. Finally, we have stressed our continued strong earnings and related retained earnings growth.
The purpose of our ongoing communications efforts is to clearly explain to our members why we believe our asset quality remains high, and why we believe any losses we experience will be manageable and therefore not represent a credit concern for our members.
Southwest Corporate has been meeting the needs of its members for over 30 years due to the strong level of support provided by its members. The goal of our ongoing communication efforts is to be as transparent and informative as possible, thereby maintaining your confidence in and your continued support of Southwest Corporate. This goal is paramount. Southwest Corporate needs and appreciates your continued support.
Please don’t hesitate to contact me or the following individuals if you have any questions concerning the mortgage market developments and the impact to Southwest Corporate.
John Cassidy, President, CEO
214.703.7800
Bruce Fox, Executive Vice President, Chief Investment Officer
214.703.7850
Melissa Wardell, Senior Vice President, CFO
214.703.7890