Seattle Bank Posts Losses Stemming From Private-Label MBS

Based off unaudited financial results, the Federal Home Loan Bank of Seattle has reported net losses of $241.2 million for the fourth quarter of 2008 and $199.4 million for the year, compared to a net income of $18.6 million and $70.7 million for the same periods in 2007.

The Seattle Bank attributes its 2008 net loss primarily to $304.2 million of other-than-temporary impairment charges on private-label mortgage-backed securities (MBS) that are classified as held-to-maturity. The bank currently estimates a principal loss of $12.0 million over the life of these securities.

This impairment charge, which was partially offset by $178.6 million of net interest income for 2008, also resulted in a $78.9 million accumulated deficit as of Dec. 31, 2008, compared with retained earnings of $148.7 million as of Dec. 31, 2007.

The Seattle Bank's financial results reflect the effects of mark-to-market accounting treatment for private-label MBS that are other-than-temporarily impaired. Assuming that the performance of the underlying mortgages does not materially decline beyond currently forecasted levels, the difference between the other-than-temporary-impairment charge and the estimated principal loss will be accreted to interest income over the remaining life of the securities.

As of Dec. 31, 2008, the Seattle Bank had a total capital-to-assets ratio of 4.6% and a leverage ratio of 6.8% and was in compliance – and remains in compliance – with both requirements. However, the distressed prices of certain held-to-maturity MBS resulted in a risk-based-capital deficiency at year-end and as of Feb. 28.

Under Federal Housing Finance Agency (FHFA) regulations, a Federal Home Loan Bank that fails to meet any regulatory capital requirement may not declare a dividend or redeem or repurchase capital stock, and the FHFA could take or require a bank to take additional actions.

"We are more than disappointed by these results, particularly in light of the significant gains we have made over the past several years," says Seattle Bank President and CEO Richard M. Riccobono. "I want to stress, however, that even in this very challenging time for our industry and our economy, we continue to fulfill our mission by serving as a steady source of liquidity and funding for the members of the Seattle Bank cooperative."

SOURCE: Federal Home Loan Bank of Seattle


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