Fitch Places Members United Corporate FCU's 'AA-' IDR on Rating Watch Negative

2008-05-30 23:26:22 -

- Fitch Ratings has placed the ratings of Members United Corporate Federal Credit Union (Members United) on Rating Watch Negative as follows:

--Long-term IDR 'AA-';

--Short-term IDR 'F1+';

--Short-term debt 'F1+';

--Individual 'A/B';

Fitch has also affirmed the following ratings:

--Support '4';

--Support Floor 'B'.

The Rating Watch Negative reflects Fitch's concern of an increasing possibility that the company could realize meaningful losses in its investment book. Given that corporate credit unions operate with a high degree of leverage, the potential risk of loss could impair Members United's capital base. However, should any losses incurred remain manageable and Members United's other fundamental strengths remain intact, particularly its considerable liquidity, the company's ratings would likely stabilize.

The size of the investment book and the dislocation in the credit markets have contributed to a large unrealized loss position in relation to capital. The investment portfolio is of high quality and continues to pay as agreed to at this point, but does contain meaningful exposure to subprime and Alt-A mortgages. Many of the select securities nearing sub-investment grade are wrapped by monoline insurers currently under stress. Members United's higher risk investment securities receive enhanced surveillance from management.

To date, Members United has not incurred any losses, but further erosion in the mortgage market continues to pressure valuations and could produce losses, either through write-downs of the higher risk elements of its investment book or 'other-than-temporary' impairment charges. Members United's ample liquidity provides it with a strong ability to hold its investment securities. Despite the general high quality of the investment book and Members United's intent and ability to hold its higher risk securities until recovery, Fitch believes that some of Members United's securities are at risk for impairment.

Beyond Fitch's concern with regard to some of Members United's investment holdings, the company continues to exhibit sound credit fundamentals, robust risk management practices, and its franchise remains solid. Members United ranks as the second largest corporate credit union, with total assets of $13.8 billion and serves 2,400 credit union members, representing 25% of the nation's credit unions. Members United's balance sheet has an overall low risk profile with strong liquidity and solid asset quality.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Fitch Ratings
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Doris Hoffmann, 312-368-2057, Chicago
Ken Ritz, 212-908-0368, New York
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