DBRS Comments on Central 1’s Q3 2011 Loss

DBRS has reviewed the third-quarter results of Central 1 Credit Union (Central 1), which reported a loss of $26.7 million. There are no rating implications at this time as a result of the review.

Central 1 had indicated in September 2011 that financial market volatility had created some mark-to-market losses in its securities portfolio, which represents a market-related loss rather than a credit issue as Central 1’s securities portfolio is primarily composed of low-risk government of Canada bonds and guarantees, provincial government debt and senior Canadian bank debt. Central 1 does not hold any European sovereign debt. Essentially, a gain in the lower-risk assets was more than offset by losses in derivatives used to hedge interest rate exposure. Since most of these investments are expected to be held to maturity, no economic loss is anticipated.

For the first three quarters of 2011, Central 1 recorded a profit of $1.3 million compared with a profit of $25.4 million in the first three quarters of 2010. Comprehensive income was less affected, with Central 1 reporting a year-to-date profit of $25.4 million, down from $29.6 million in the equivalent 2010 period.

Although Central 1 remained adequately capitalized at the end of the quarter, it completed a $100 million capital call subsequent to quarter end, highlighting the support mechanism that allows Central 1 to draw on its British Columbia and Ontario members. Central 1 also announced the redemption of $50 million in subordinated debt.

The B.C. members recorded a $91.3 million profit for the third quarter, while the Ontario members recorded earnings of $35.5 million.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodologies are Rating Canadian Provincial Credit Union Centrals, Credit Unions and Desjardins Group, Global Methodology for Rating Banks and Banking Organisations and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments, which can be found on our website under Methodologies.