Climbing Out on the Prognostication Limb Again
The big news of 2009, of course, has been the weakened state of the economy, and credit unions have discovered that they are not immune to the outside world just because they are responsible stewards of their own institutions. They are inextricably tied in the Gordian knot that is the global economy.
As such, credit unions were faced with challenges and opportunities. As of October, CUNA found credit union delinquencies hitting 1.8%, nearly double historic norms. That rate will edge higher in 2010 as unemployment bobs around 10% and the second wave of ARMs resets. I would not be surprised to see credit union delinquencies settle around 2.5% or higher.
At the end of 2008, I had predicted the credit union community would dwindle from 8,198 total institutions to 7,600. I was wrong. As of October, there were 7,889, and I don't predict nearly 300 credit unions closing up shop in the next two months. However, it's not outrageous to say that the credit union community will shrink by 500 institutions in 2010, and that's not necessarily a bad thing.
As it should be, only solid institutions that commit to slow and steady evolution will survive. This year serves as perfect evidence that calculated growth within your own corporate belief structure, rather than joining the rat race to earn a quick buck, is crucial. Credit unions, large and small, that adhere to this will prosper in 2010 and beyond, and the credit union industry will be better for it.
The same goes for corporate credit unions. If the NCUA rule moves forward pretty much as proposed, I'd expect possibly half a dozen leaner and more geographically focused corporates to emerge.
Last year in my Dec. 24 column, I predicted credit union capital would fall to 10%; this one was right on the nose, according to the latest figures from CUNA. As mergers increase and the economy returns and consumers continue pouring funds into credit unions, this figure should hold steady with possibly a slight uptick at the end of the 2010. Mark my words though: Americans' newfound thrift will be a mere memory five years from now. Their short attention span and the latest PlayStation will distract their attention to savings in the long run.
I had high hopes for credit unions' share of the mortgage market to double from the 3.9% they held last year, but it wasn't to be. However, the 5.2% of the mortgage market they've achieved is none too shabby. That figure will continue on its upward trajectory through 2010.
I also stated in my column a year ago that CUNA and NAFCU would continue to have troubles getting along, and it seems as if the relationship has become even more tenuous. I realize that wasn't really going out on a limb.
I also said that the two major national trade groups would not be in serious merger talks, which, given NAFCU's sharp and public rebuff every time the subject arises, I believe is still true. However, drastic times call for drastic measures. The credit union system even post-recession will have a difficult time justifying financial support for the two separate groups. I continue to feel that each group has its strong suits, but I believe backers of each group and both groups will have to seriously reconsider the SOP. If something is not done to consolidate or at least better coordinate their efforts, the two groups could atrophy and damage everyone's efforts.
If a merger of the two is to be completed, the best approach would be to start fresh with a new name and marry the best of each. I use the term marry intentionally because it would have to be treated as the joining of equals and not CUNA taking over NAFCU. (Though Fred Becker might welcome CUNA merging into NAFCU.)
One issue that CUNA and NAFCU have worked in concert is increasing the cap on member business lending. CUNA and the leagues flew in several hundred credit union executives to lobby for the legislation, which had a strong chance of being added to the jobs bill, but did not make it. I had predicted bits and pieces of CURIA, of which the MBL cap was one, would be broken apart into separate legislation and pass the House in 2009. Close but no cigar.
Similarly, I had said making credit unions subject to the Community Reinvestment Act had a good chance of passage in the 111th Congress. Not yet, but lawmakers probably realize that next year may be their last shot at it. The Dems are going to be losing seats in both the House and Senate, which will hamper any effort on this over the following few years.
And finally, a resolution: Credit unions must continue to, or in some cases re-learn, to work within the cooperative structure they have. I believe credit unions should have expanded business lending and risk-based capital, but you don't. Credit unions have to work within the framework they have. Keep reaching for those expanded authorities while at the same time taking a rejuvenated and creative look at reality.
Credit unions must find ways to not only deepen their relationships with their members, but also with other credit unions. They must fully embrace where they stand in the larger scheme of global financial services. At the same time credit unions should explore aligning themselves as strongly with all parts of the cooperative movement as they do to other types of financial institutions.
Here's to prosperity for you and yours from Credit Union Times.
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