FHLB Pittsburgh Close To Breaching Capital Requirement
16 Januar 2009 - 7:09PM
Dow Jones News
The Federal Home Loan Bank of Pittsburgh is on the brink of
breaching its regulatory capital requirement due to the significant
deterioration of mortgage bond investments in the fourth
quarter.
The troubled investments include bonds backed by loans made to
prime borrowers, a worrying sign that growing unemployment is
squeezing homeowners with good credit.
In a conference call Friday, the bank said it could be forced to
increase the fees it charges its 323 member banks, in an attempt to
increase its capital cushion that stood at $72 million, as of Nov.
30.
The bank is expected to report its results later this month, at
which time its capital positions will be clear.
FHLB Pittsburgh with its $99 billion in assets is one of the
larger organizations in the 12-branch FHLB system, which is a
cousin to mortgage finance companies Fannie Mae (FNM) and Freddie
Mac (FRE). The FHLB banks are a prime source of funding for U.S.
banks.
The Pittsburgh bank's announcement comes days after FHLB Seattle
said it was short of this critical requirement and a week after
ratings agency Moody's Investors Service warned that many of the
FHLB banks face similar capital constraints. The banks' regulator,
the Federal Housing Finance Agency, said it is considering
proposals including a reset of the capital ratios at these
banks.
The Pittsburgh branch already has embarked on a series of
cost-control measures including canceling its dividend for the
fourth quarter of 2008 and share buy-back program.
It warned, however, that such measures may not be enough to
offset losses in its investment portfolio.
The precipitous dip in mortgage bond values last year resulted
in a significant drop in the market value of the investment
portfolios held by the FHLBs. For instance, the FHLB Pittsburgh's
$8.8 billion investment portfolio dropped to $6.4 billion as of
Dec. 31, 2008, the bank said on Friday.
Kris Williams, the FHLB Pittsburgh chief financial officer, said
the bank valued bonds backed by loans made to prime borrowers at 77
cents on the dollar, as of the end of December. Bonds backed
riskier Alt-A loans were valued at 65 cents on the dollar.
As recently as September, the ratings on the bank's mortgage
bonds retained their investment-grade ratings. However, within the
quarter, only 85% of these bonds were still high-grade, she
said.
As a result, the bank's risk-based capital requirement rose to
$4.24 billion as of the end of November, from just $1.95 billion at
the end of the third quarter. The bank's capital on hand is $4.31
billion.
Some of the fund-raising measures that could be taken, with
board approval, include charging member banks for unused borrowing
capacity, increased charges on advances and on new loans under the
mortgage financing program, said Craig Howie, group director of the
bank's member services department.
-By Prabha Natarajan, Dow Jones Newswires; 201-938-5071;
prabha.natarajan@dowjones.com
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