It looks like AgriBank isn't done marking down the values of mortgage-related securities it holds.

Structured-product buyers expect the St. Paul, Minn., lender to devalue those investments by $100 million or so by yearend, on top of $136.6 million of unrealized losses it has taken on them since the home-loan industry imploded a year ago. Some of the additional losses may be disclosed in the operation's second-quarter financial report, which could be issued at any time.

AgriBank began accumulating the investments nearly 10 years ago, as part of a $7.5 billion portfolio it holds for emergency-liquidation needs it might encounter as the largest of five banks within the U.S. Farm Credit System. The operation acts as a wholesale lender for borrower-owned institutions in 15 Midwestern states, which in turn extend loans to agricultural, livestock and seafood businesses, as well as electrical and telephone-system cooperatives.

AgriBank operates under the supervision of the U.S. Farm Credit Administration. Its holdings of mortgage-related bonds mainly encompass home-equity loan and subprime-mortgage securities that originally had triple-A ratings - instruments it chose because they were highly liquid. Clearly, the bonds aren't so liquid these days. They totaled $854 million as of March 31, following a $77.5 million writedown for the preceding three months. The portfolio weighed in around $1.1 billion when it began showing signs of stress in mid-2007.

At the time, AgriBank said it had evaluated the investments and determined that they didn't pose a significant risk of losses, considering credit protections they carried and the fact that they had relatively short lives. But by the end of September, the bank had recorded a $19.9 million loss on the holdings, whose values had fallen substantially amid defaults within their collateral pools and downgrades by Moody's and Fitch.

S&P then lowered ratings on some of the bonds as well. That may have triggered regulatory mandates that force AgriBank to sell securities once they are downgraded by all three rating agencies - which may explain why the bank's markdown total is smaller than the contraction of its mortgage-bond portfolio over the past year.

However, AgriBank said in its first-quarter earnings report that the markdowns it has been taking are temporary, and that it "intends to and has the ability to hold all securities to maturity, at which time no losses beyond those already recorded are expected."

The bank singled out one deal in which it doesn't expect to recover all of its principal, leading to a $5.4 million impairment charge. The further losses that outsiders are predicting come amid persistently deteriorating market conditions and signs that credit erosion within mortgage pools may get even worse.

AgriBank is considered a savvy investor in structured products. In addition to private-label mortgage bonds, it holds agency paper and asset-backed securities underpinned by auto loans, credit cards and student loans. Those securities totaled more than $2.9 billion at the beginning of 2006, about $2 billion of which came from the mortgage agencies.

In early 2007, AgriBank entertained thoughts of adding CDOs to its portfolio, but it's unclear if it ever took the plunge.

The institution's markdowns serve as just the latest example of how far losses on investments in structured-finance instruments have spread amid the credit crunch. Already, financial institutions around the world have taken more than $300 billion of markdowns on such holdings, with Merrill Lynch absorbing the most severe hits (see article on Page 3). v