Credit Unions and Leagues Cautiously Ponder Alternatives to Corporates
The decision-making process began in earnest last week among credit union managers and the leaders of state leagues on the next step in dealing with possible alternate vendors for wholesale services as a result of the corporate seizures.
The problem and the concerns appeared most intense in states where the three corporates are domiciled: Hartford, Conn., Chicago-New York and Dallas.
A number of the healthier corporates were acting quickly last week to solicit new CU clients, sending out e-mails and letters to prospects or dispatching staff to league meetings, particularly in the Northeast. That's because the now conserved Members United Corporate FCU of Warrenville, Ill., as well as Constitution Corporate FCU of Connecticut retained a large number of client CUs in the region prior to NCUA's Sept. 24 takeover.
While CUs considered their next move, there were also cautionary warnings issued by league leaders and by CEOs from the corporates themselves, suggesting CUs move slowly and with due diligence before making snap judgments in switching alliances.
"Amidst the turmoil, Mid-Atlantic Corporate Federal Credit Union remains strong, steady and safe, and with our longstanding conservative investment philosophy of SLY-safety and liquidity before yield-Mid-Atlantic Corporate has a history of putting our members' long-term interests over short-term corporate gains," said a Sept. 28 letter from Jay Murray, president/CEO. The letter was sent to CUs across Pennsylvania, New York and New Jersey.
Similarly, Corporate One FCU in Columbus, Ohio, said it stands ready to service ex-Members United clients "with a full line of products and a healthy strong corporate base" and an efficiently run organization, said Lee Butke, president/CEO.
"CEOs should not be making any quick decisions," cautioned Butke, as officials from affected Northeast leagues noted the 24-month lead time on the NCUA bridge charters.
Both Butke and Murray as well as other vendor reps are expected to tout their cases before New Jersey CEOs at the annual convention of the New Jersey Credit Union League, which opened Oct. 5 in Atlantic City. Members United CEO Joe Herbst, who was fired by NCUA as part of the takeover, had originally planned to attend, but changed his plans.
Paul Gentile, president/CEO of the New Jersey group, said the conservatorship "comes at a time when Members United was set to unveil its capitalization plan to members, something many credit unions were looking forward to."
"That is now off the table for now with the conservatorship," he said, adding that the conservatorship brings an air of uncertainty to New Jersey CUs.
Meanwhile, the Credit Union Association of New York, like its California counterpart, said it was forming a task force to assess future needs and options regarding corporate credit union services in light of the changes to the corporate credit union system.
The task force will be composed of a group of credit union leaders who represent various credit union asset sizes across the state, said CUANY. "The task force will seek options and solutions that best harness the power of cooperation and unity that continue to be the cornerstone of the credit union movement."
In Illinois, the chairman of that state league, Dennis Hall, who also is president/CEO of the $830 million I.H. Mississippi Valley CU of Moline, urged CUs in his state to remain "calm and avoid knee-jerk reaction" as it considers alternative moves to handle wholesale services.
Still, small and medium size Illinois CUs will be facing difficult financial dilemmas as they grapple with the fall of Members United. His own CU is of sufficient size to seek out alternative vendors for its item processing, check clearing or funding sources, but smaller CUs are in a tougher bind.
His credit union, he said, decided months ago to set up a working account at the Federal Reserve Bank of Chicago because of better pricing. It also maintains liquidity backup at the Chicago Fed, he said, noting that I.H. Mississippi retains its wholesale clearing business with Members United, but "we just want to be ready so we could move in an instant."
For the time being, "this should be a period of wait and see for Illinois credit unions until the dust settles."
One option for small CUs may be to seek out banks, but that route may be impractical and too costly."Let's just sit tight," said Hall noting also the seizures "caught us and others completely off guard-a big surprise with a lot of negative press."
The Texas Credit Union League said it also was considering many options, forming a task force being among them.
"Once we've completed our research, we'll share the information with our board and together determine which course of action best suits the needs of our credit unions," said a statement from Richard Ensweiler, president/CEO.