In Wake of Corporate CU Stumbles, CUSOs Moving Cautiously Forward
Instead, within a week of WesCorp's conservatorship by the NCUA, the Texas-based CUSO had signed two new contracts. Procura, which is also owned by MEMBERS Development Co., PSCU Financial Services and technology provider Works, is optimistic about its future in spite of the uncertainty swirling around it. In 2008, it earned $2.75 million in revenue through its flagship "Purchase One" program that offers order and invoice payment processes. It has 88 credit union clients and has been in the black for more than a year, according to Amanda LoBiondo, managing director of Procura.
"We haven't had any credit unions jump ship. While we continue to build our pipeline, our sales cycle is longer than it was last year or the year before. We've noticed that some credit unions are taking a wait-and-see position as they make a decision on signing new contracts," LoBiondo said.
Still, Procura, like many businesses that serve the credit union industry, is feeling the sting of the economic downturn and the efforts to stabilize the corporate network. Many have a magnifying glass on the bottom line as they streamline their operations. For some, it may also mean putting projects on ice and implementing hiring freezes, furloughs or layoffs.
LoBiondo said Purchase One's spend growth (the dollar volume of credit union purchasing going through the card platform) has slowed. In response, starting in the third quarter, Procura will focus more on its existing resources to current clients as opposed to seeking new business. It has a contractual human resource arrangement with its owners to keep costs down. By the first quarter of 2010, the CUSO is hoping market conditions will have changed enough for it to hire another full-time employee and refocus on program development and new sales.
"I was in high tech-credit card software, specifically-back when the technology bubble burst, and I remember that most of the dot-coms failed," LoBiondo recalled. "But businesses that were nimble, had tangible products that brought value and served a real purpose survived, and I think we'll see the same thing when we emerge from the current tough times."
With growing interest in credit card portfolios, MEMBERS Development wants to explore possibilities, said Jeff Kline, president/CEO. However, there's nervous energy on whether the losses have hit bottom. The incubator is owned by 65 credit unions, corporates and CUNA Mutual Group, a collaborative plus when it comes to keeping costs down for everyone involved.
"We had to slow down. Because a lot of people are exiting the space, there are some opportunities," Kline said. "What a great time for credit unions to have their own credit card [entity]."
Because the main question is where the funds will come from for new products and services, there are longer pitches to get credit unions to sign on, Kline said. All this as budget plans are revised in light of the corporate fallout and NCUA assessments. While he can understand the industry's need to watch the bottom line, a complete shutdown may be foreboding.
"Everyone is being whip-sawed around. People are exhausted and don't have time for one more initiative," Kline acknowledged. "But this is not a good time to pull the reins in and be conservative."
Navigating through the downturn has forced a few smaller credit unions served by CU Business Group to scale back their business lending activities, said Larry Middleman, president/CEO of the Portland, Ore.-based CUSO, which is majority-owned by Southwest Corporate Federal Credit Union and Members United Corporate Federal Credit Union. Six other corporates also have an ownership stake. The CUSO has taken a much more conservative approach to managing expenses, including hosting more Webinars in lieu of travel. While there is still a demand for member business lending services and a growing interest in taxi medallion underwriting, CUBG has had to restructure some of its products, Middleman said.
"The industry as a whole was shocked [by the write downs and corporate conservatorships]. We operate independently from the corporates, so we didn't have any direct impact," Middleman explained.
Despite the industry's turmoil, CUBG has added more than 10 new clients since the beginning of the year and is prepping the rollout of risk-management products. To help credit unions with their respective efficiencies, the CUSO cut early registration fees by $50 for its annual conference in August. So far, CUBG has not had to lay off any of its staff of 27. In fact, demand has picked up for loan workouts, remote deposit services and loan participations for those credit unions hovering near the 12.25% MBL cap, Middleman said.
"I'm in touch with [CUBG's corporate owners] on a regular basis. We're not costing them any more. We're not taking on credit risks."
The "big slowdown" late last year had CUSO Financial Services LP contemplating its next steps, said Valorie Seyfert, president/CEO and co-founder of the San Diego-based broker-dealer and investment advisory firm.
"People just stopped what they were doing," Seyfert remembered.
While people still had money to lend through CFS via retirement funds and bonuses, the stock market's steep declines coupled with the nation's shaky economy led to a flight to deposit instruments such as certificates of deposit, Seyfert noted, adding that the CUSO's money market linked brokerage account saw record-high balances. Money under management and asset value "dropped significantly."
The CUSO didn't stew, choosing instead to get more proactive with its marketing campaign that encouraged credit unions to go after opportunities brought on by the market shakeups. CFS aligned with research company Alert, which does due diligence on insurance companies. Armed with that information, advisers shared the findings with the CUSO's clients. Some had business with American International Group, Merrill Lynch and Lehman Brothers.
"We didn't want them to panic and sell off their investments," Seyfert said. "That's the worst thing they can do. You want to perhaps do some repositioning."
CFS also embarked on a marketing campaign that focused on volatility. The CUSO experienced a lull in February and March, but the busy individual retirement account season, which tends to run right before the April 15 tax-filing deadline, led CFS to its second largest revenue posting in the company's history, Seyfert said. Despite profits being down, the firm also managed to dole out $8 million in distributions to its credit union partners in 2008.
The corporate restructuring also impacted the CUSO's business as credit unions grappled with losses and write downs in a sea of low ratios. Seyfert said CFS positioned itself as an adjunct, offering brokered CDs, government-guaranteed bonds and insurance products that have strong returns with a short time span. The CUSO's trading opportunities program, which offers institutional investment options, gained new interest. More than 20 credit unions now participate in the eight-year-old program. An exodus of Wall Street employees has also opened up more hiring opportunities. CFS recently added three more staff positions.
"One of the biggest challenges credit unions face with investments is there's so much opportunity but not enough comes to [them]," Seyfert said. "They have the ability to shines and say, 'We did not invest in these speculative investments.' We want to position them to take advantage within the chaos."