Credit Unions Need to Star in Their Own Reality Show
CUNA Senior Economist Steve Rick said in a recent News Now article that credit union delinquencies haven't been this high since President Reagan was in office. He also said that credit unions can expect that number to only go up because of weak job creation due to economic uncertainty. In particular he noted that "more than six million people who have been unemployed for more than six months, up from one million two years ago."
How that translates for many credit unions is that what you cannot do is run your shops the same way you did during the Reagan era, as many do. At the same time, certain pieces of the industry from 20 years ago and through the next 20 years and beyond must remain intact. Collaboration is key to credit unions' survival.
Doug Petersen, executive vice president at Workers Credit Union in Massachusetts, spoke on a Callahan & Associates' Webinar last week. The credit union wasn't realizing the return it wanted from a multi-owned CUSO and so left that relationship. Credit unions need to accept and break off partnerships that aren't working for them, even when it's with a credit union-owned entity.
Petersen said that Workers was able to find another CUSO to partner with for its mortgages, which is great to keep the business in the family so to speak while expanding beyond Workers' own means, but sometimes the best alternative for your credit union may be outside the credit union movement. The credit union industry has plenty of great innovators and doers if it works cooperatively, but absent willing collaboration, a credit union's best bet may be to go elsewhere. Workers has gone the collaborative route with ownership in eight CUSOs and participating in two others.
For-profits are even taking notice of the cooperative model. I sat down with Open Solutions Chairman/CEO Louis Hernandez last week who is convinced that the cooperative model is a beacon to other businesses. He expressed concern for the credit union movement's move away from collaboration and encouraged credit unions to work together where they can to save money in areas that don't affect brand or scare members, such as a call center and back-end processing. After entirely rewriting its core product more than a year ago, Open Solutions is looking to roll out tools that allow for greater collaboration between clients, Open Solutions and other vendors. DNA Creator has been released to limited clients for free but will be available to all customers in April. I picture it similar to offering Adobe offering Reader for free; it's about the reach so that people who want to share information have to buy the program to create PDFs. In essence, Open Solutions could be creating its own competitors, which I'd assimilate to a larger credit union offering a smaller one a hand without the phrase "merger" stuck in the back of executives' minds.
CUNA Mutual is a company that has always contributed to the credit union movement, not only in dollars but also lobbying and other efforts, such as the UBIT lawsuits. The company was back in the black this year to the tune of $50 million after a $150 million loss last year. Even with the hard times CUNA Mutual experienced, CEO Jeff Post said that it did not affect the lobbying and legal support given to the credit union movement, though contributions to the leagues were restructured.
On the business side, Post commented, "We're doing everything we can to keep our rates flat...Could we or should we file for an increase? Probably."
CUNA Mutual, too, is looking to the future and diversifying. It has sold off some arms of the company while investing in others, such as crop insurance which has nothing to do with credit unions.
Post was also an advocate of a one corporate credit union system, similar to that proposed by Members United last week. "Form one. Make it a utility. Let the credit unions own it," he said. He asserted that credit unions would save over $300 million a year that way that could be dumped right back into capital.
That's a lot of efficiency gained and a lot of capital credit unions could be using to provide more products and services to their members rather than into operating duplicative operations. There again, if credit unions didn't like it, they could go outside the single entity.
Looking back at Workers Credit Union, not only is it active in CUSOs, but the credit union is focused keenly on two areas of growth: mortgages and business loans. In fact, Workers partners with another CUSO for business lending needs. Additionally, the credit union is pumping resources into these two areas that it has identified as important. Workers added three seasoned-not entry-level-full-time equivalents to as mortgage originators and generated $80 million in mortgages in 2009 versus $24 million in 2008. Wise investment timed to take advantage of not only a void in mortgage lending but also hiring up experienced professionals at a time when salaries are depressed was very forward-thinking maneuvering that will serve the credit union well for a long time to come and the oft sleepy bedroom industry of credit unions should emulate. The same goes for business lending. No, it's not right for every credit union, and yes, the regulator will be watching business loans like a hawk for the foreseeable future, but the investment in doing it right will pay off.
Nevada Federal Credit Union is doing something it probably never would have thought to before the current economic crisis: it is offering members who only have CDs over $25,000 with Nevada Federal (about 1,600 members totaling more than $100 million) a premium to move their CDs elsewhere. In normal times the idea would seem ludicrous, but with zero loan demand, investment yields at 10 to 25 basis points, and an NCUSIF assessment of between 15 and 40 bps, the math just can't add up, CEO Brad Beal said.
The underlying theme here is that all these companies and credit unions have faced their new reality and are working to do more than just survive within it. It takes foresight, creativity and guts. Credit unions that are not looking to offer new products or not exploring how to offer them in new ways or to offer them to new people will go the way of passbook savings.
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