Editor's Note: This story appears in the March 23 print edition. After the issue went to press, federal regulators announced that Western Corporate Federal Credit Union had been put into conservatorship due to liquidity concerns.

While retail credit unions grapple with increasing loan delinquencies, there are separate, deep-seeded problems cropping up in an obscure sector of the industry.

Corporate, or wholesale, credit unions operate in the background, and provide liquidity and investment services for retail credit unions. The institutions are contending with substantial losses on a variety of investments, including mortgage-backed securities.

In the United States, there are just 27 of the corporate credit unions, which are owned by their retail credit union members. Western Corporate Federal Credit Union in San Dimas, known as WesCorp, is among the largest, with more than 1,100 credit union members and assets in excess of $28 billion.

As of January, the credit union had unrealized losses in its investment portfolio of $2.6 billion a number, the institution warned, that could continue to grow.

"The depressed fair values of these investments are largely attributable to the dislocation in the securities market caused by ongoing illiquidity and credit conditions," WesCorp said in its most recent monthly financial statement.

Nearly half of the credit union's $22 billion term investment portfolio consists of securities backed by subprime or Alt-A mortgages, which have been defaulting in large numbers.

In late January, after an unexpected $1.1 billion loss by the country's largest corporate credit union, the U.S. Central Federal Credit Union in Lenexa, Kan., federal regulators moved to rescue the industry with a plan that would inject as much as $4.7 billion into the network of institutions. The money is expected to come from the nation's credit union insurance fund, which has become a contentious issue for the nearly 8,000 retail credit unions that pay fees into the fund.

A number of retail credit unions have spoken out against the plan, saying they should not have to bail out their corporate counterparts. But regulators have not been deterred.

"We hear their concerns but we have an obligation to ensure that the industry remains safe and sound," said John McKechnie, a spokesman for the National Credit Union Administration.

Still, the resistance led Standard & Poor's Corp. last month to put a negative credit watch on the debt of the 10 corporate credit unions it rates, including WesCorp.

The credit union released a statement in response to the S & P; action downplaying the dispute between corporate and retail credit unions as a "family argument."

"We believe S & P; has interpreted the current climate too negatively and that solidarity in the credit union family remains intact," WesCorp said.

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