8 FOR '08: What to Look for in the New Year
I take the optimistic view for credit unions in 2008.
As once said by Gen. Colin Powell, former secretary of state (and the keynote speaker at the 2008 GAC, March 2-6 in Washington), "perpetual optimism is a force multiplier." In short, being optimistic gives credit unions more power.
And credit unions have much to be optimistic about. With now more than 90 million members on their membership rolls, a track record of safety and soundness during the subprime meltdown that is the envy of other financials and with political acuity that is growing into a respected national powerhouse, credit unions are poised to enter 2008 with much going on their side.
Here's what I see coming:
-CUs will weather the subprime mortgage crisis: While mortgage default rates spiked at other lenders in 2007, credit union defaults hovered near zero. Unlike those enormous lenders that ran into trouble, credit unions held the majority of their loans they made in their portfolios. This served two purposes: Keeping members satisfied and credit unions solvent in the long term. Further, credit unions shunned predatory practices that lured those who would have to struggle to repay a loan that was just too big. In the New Year, credit unions are well-advised to continue this track record--and maintain their position as "the financials who do it right."
-In a slow economy, credit unions will be a haven for members: CUNA's economic team sees growth slowing in 2008 to 1.8%, well below the long-term sustainable trend growth rate of 3.5%. The causes: rapidly cooling housing and manufacturing sectors and a negative income effect from rising energy prices (which are already plaguing the economy). Our team also expects that falling home prices will reduce consumer spending, but increase household savings rates over the next two years. With slower loan growth (and deteriorating credit quality), return on assets at credit unions will likely sink to around 0.70%. But, a steepening yield curve next year should remove some downward pressure on credit union net interest margins.
-The elections will suck up the political oxygen: That is a no-brainer in an election of historic proportions--the first in 56 years (and only the second in 80) in which neither a sitting president nor a vice president is running for the presidency. In this age of YouTube, blogging, 24-hour news cycles, 527 groups and more, the American electorate is in uncharted waters with no incumbent of some stripe in the race. What is certain, however, is that the next 12 months will be a wild ride. Predictions? Entirely too early for anything like that; everything is up in the air. But here is what credit unions must do in 2008: Be prepared to work with both sides of the aisle, no matter who ultimately rules the roost come January '09.
-Credit unions will have a voice in the 2008 political process--like never before: With Project Zip Code (which has counted north of 64 million credit union members--more than 70% of all), an unmistakable presence at the national political conventions (focusing on credit union action, philosophy and hospitality), and campaign schools (which are helping credit union friends learn how to run for office), the credit union movement is poised to be a complete player.
-Although limited, there will be opportunities for results in Congress: With polls showing Congress' approval rating at a near-all-time low of 26%; and a "disapproval" rating at 61%, the federal legislature may find it critical to post some accomplishments and bump those numbers in more positive directions before the election. Given that, credit unions will have to push hard during the early part of the session (when it just so happens CUNA's GAC will be in full swing), in order to work for results in the latter part of the session (on CURIA--or parts of it--and other regulatory relief for credit unions).
-Credit unions will do a better job of defining themselves: In 2007, CUNA began taking efforts to "change the conversation" in Washington about credit unions--primarily by introducing "The Little Guy," an iconic character who represented who it is that credit unions serve. In the coming year, we will be doing more of that--by emphasizing how credit unions serve the Little Guy, in a way that "breaks through the clutter," and shows the real differences between credit unions and other financial services providers.
-Bankers will again insist on credit union taxation: But they are unlikely to build much traction. Signs are appearing that bankers' same old song is grating on the ears of Congress, particularly when Congress is attempting to post some accomplishments in advance of the election. Increasingly, the attitude in Congress is--as one lobbyist observed recently--"People have a choice, you can just say 'no,' or you can try and participate in the process." Nevertheless, credit unions must remain vigilant, and stand up for their hard-earned tax exemption whenever it comes under attack.
-More and more credit unions will wish the movement spoke with one voice: I have been remiss in my tenure in finding a win-win approach that would allow the two national trade associations to speak with one solid and mighty voice. I now believe that task is up to movement leaders, who have a clear understanding of the need as well as a vision for the future. I am hopeful that 2008 will bring a better understanding on everyone's part regarding the need for one national voice.
As I said at the outset, I am an optimist. I wake each day with the thought that credit unions are the best thing going as financial institutions for consumers. I know credit unions share that optimism -- particularly in what they do for America--as the "force multiplier" for better-serving their members. They will make the most of it in 2008.