Few Look for Corporate Alternatives
Problems at corporate credit unions aren't driving a mass exodus of members seeking other providers.
Even some of the wholesale credit unions' biggest critics, like 1st Valley Credit Union president/CEO and Western Corporate FCU plaintiff Gregg Stockdale, aren't jumping ship yet.
"We're in the middle of a data conversion, and I'm not going to address it until we have our new data processor in place," Stockdale said. "Besides, it's not like I have any capital still tied up at WesCorp. I don't have the pressure of a three-year notice."
The leader of the $36 million credit union said reassurance from the NCUA that corporates will still provide settlement services has eased the pressure.
"They're not telling us when we'll have to recapitalize WesCorp, or even if, so I think that decision is still a few years down the road," he said.
Stockdale said he'd prefer using a CUSO, or with some regulatory adjustments, one large natural person credit union for core services like share draft processing.
First Entertainment Credit Union president/CEO Charles Bruen has been vocal about his refusal to recapitalize WesCorp. But, Bruen said he thinks most corporate members will pay up when asked to do so.
"I guess I'm sort of leading the anti-recapitalization parade, but when I look behind me, I don't see many people following," he said.
Bruen is also in no hurry to replace WesCorp.
"I've been told informally that we'll have at least six months notice," Bruen said. "WesCorp and the NCUA aren't going to tell us we have to get out tomorrow. Assuming we have that six-month window, all we need to know at this point is what services we'll have to deal with. So, when I meet with vendors, now I'm asking them about other services they offer."
First Entertainment did create a contingency plan to replace corporates that includes 33 services currently provided by WesCorp. He said shopping around confirmed what he already knew: Despite all the complaints about WesCorp's investment strategies, the revenue from those investments significantly subsidized pricing.
"With WesCorp you have two issues: replacing their services and replacing them with a price you would like to pay," he said.
Bruen said WesCorp has discussed with members the possibility of splitting off its payment systems division and making it a CUSO, which he supports.
"Tony Kitt runs a great operation, and I would love to see it become a CUSO separate from the corporate," he said.
First Entertainment was a member of five corporates at one time, and Bruen said his favorite was Southwest Corporate FCU. But because Southwest has also recorded significant capital impairments, he's looking at small corporates that still have all capital intact.
Finding a vendor to process paper checks has been the toughest task, he said.
"If I had to switch my credit card business tomorrow, it would be simple, because I can choose between half a dozen quality vendors," he said. "But paper is a dying business. It doesn't have a long-term future, so difficult to replace."
Cincinnati's Fifth Third Bank is an option, he said, as well as Bank of the West. He is not interested in processing checks in house.
Larry Biernacki, president/CEO of the $796 million Arkansas Federal Credit Union, said he's not even looking for services to replace Southwest Corp.
"We're gonna finish the dance with the one that brung us," he said. "Yes, the corporates are sick, but they're not dead. I've read a variety of plans and proposals that have merit, so I think jumping ship is premature."
Biernacki agrees with Bruen that most credit unions probably will recapitalize.
"I'm not sure what the value proposition will be after final regulations are released, but right now we're very pleased with what Southwest does for us and price they charge for it," he said. "But even more than that, I think standing by the corporates is part of the cooperative nature of credit unions. I think there are still advantages to keeping all those services in house, in our own industry."
Mixed emotions about corporates are causing credit union vendors to walk a thin line between supporting their strategic corporate partners, and leveraging the situation to gain new business.
Symitar marketing director John San Filippo said while there's "nothing good" about the losses corporates have suffered, his San Diego-based core processing firm is comparing its product menu to what corporate credit unions currently offer and determining where it might fill the gaps. He said some customers are dead set against recapitalization, but most have merely expressed hesitation and are asking for education regarding what alternative services Symitar, and other Jack Henry divisions like ProfitStars, can provide.
"The challenge is, we don't want to just say, 'Dump your corporate and come to us,'" he said. "The other half of that equation is how we can subtly say, 'Here's what we can do for you.'"
Debbie Wood, general manager of marketing for Jack Henry, said the firm doesn't see itself in direct competition with corporates, because it markets some products through corporates.
"Credit unions can either come direct to us, or in many cases, they have a good business reason to go through their corporate," she said. "We understand and respect that."
Ron Bergamesca, executive vice president and general manager of Online Resources Corp.'s credit union services division, said he hopes corporates survive.
"Are corporates weaker? Yes. Therefore, can we compete better? Yes. But, instead of competing with corporates, we prefer to partner with them to reach more credit unions," he said. "Competing on a one-on-one basis won't accelerate our growth."
Bergamesca said ORCC hasn't experienced an increase in business or inquiries among its 330 credit union clients since corporates began experiencing losses. Rather, a stagnant economy is limiting credit union spending on his online banking, payments and marketing products.
Hal Tilbury, president/CEO of remote-capture provider Bluepoint Solutions, also said his company doesn't seek to strengthen its position against corporates. "Some of our competitors are openly competing with corporate credit unions, but that is not our intention," he said. "Our vision doesn't include our becoming a data center. We're not in that business. We complement corporate credit unions, and we want to continue to do that."
The Federal Home Loan Bank of San Francisco is also reporting it has not experienced an increase in credit union business in the last 18 months.
Stephen Traynor, senior vice president of financial services and community investment, said that while his FHLB has been a "viable competitors to corporates" for advances, it doesn't provide any settlement services, investments or other core corporate services.
Rather, the cooperative bank's credit union business is driven by loan demand, he said. In 2009, the bank actually lost one credit union member. Of the bank's 411 members, currently 97 are credit unions.
Only First Empire Securities' Charlie Felker is reporting a windfall of business as the result of corporate struggles. However, even the oft-critical former regulator credited the nature of his business for the gain rather than objections to recapitalization.
"I think we'll still have a corporate system going forward, but it will be very consolidated and limited in its ability to offer competitive returns on investments, unless the NCUA is willing to give in quite a bit on its proposed rule," he said.
Felker said less restrictive investment regulations are unlikely, because both the industry and Congress expect the NCUA to rein in investment risk.
"Anything short of a more restrictive rule leaves the impression they haven't solved the problem," he said.