Escalating troubles at Ambac Assurance Corp. and the resulting inability of the bond insurer to make even less of a partial payment on claims than it previously expected caused U.S. Central Federal Credit Union to restate its fourth quarter results for 2009, adding $274 million in losses that came from MBS investments.
As a result, U.S. Central had losses of $750.9 million for the fourth quarter and $2.04 billion for the full year. U.S. Central, which has been run under a National Credit Union Administration's conservatorship program since March 2009, had a loss of $4.9 billion for 2008. Financial troubles at Ambac caused its regulator, the Wisconsin Insurance Commissioner, to issue an order restricting the company's activities and its ability to pay bond claims.
As a result, U.S. Central now projects it will collect 25% of its claims from Ambac, down from earlier projections of 80%. This increased U.S. Central's estimates for credit losses on Ambac-backed bonds to $416.1 million.
Ambac is one of several troubled bond insurers whose financial troubles are trickling down to customers like the corporate credit unions, with other corporates cutting their recovery estimates in recent months on bonds insured by MBIA, Financial Guarantee Insurance Corp., Syncora Guarantee and FSA (now Assured Guarantee Municipal). Both FGIC and Syncora have been ordered by the New York Insurance Department to stop paying claims in order to preserve what little capital they have.