Risky CDOs a Disaster for CU
Out of all the investments made by WesCorp Federal Credit Union over the past few years, perhaps the worst turned out to be risky collateralized debt obligations that appear to have little intrinsic value and have caused a staggering $545.6 million in losses-and counting.
That's a 90% writedown on an original par value of $609 million worth of the CDOs, securities that are themselves comprised of asset-backed securities. The losses on the CDOs were among the largest component of the San Diego-based WesCorp's $1.2 billion in loss for 2009.
"None of this stuff is federally insured or guaranteed," said Charles Felker, vice president for credit union bond house First Empire Securities and the former chief investments officer at NCUA.
"What you have here is privately issued debt. With the benefit of hindsight, some of this stuff became dynamite."
The structure of the WesCorp CDOs is layered, so that layers with top AAA ratings are layered on top of those with AA ratings, then A, and so on.