What Credit Unions Need and What They Don't Need
Credit unions could use a charismatic leader right now. Who is going to rallies the troops to get this splintering industry to-well-cooperate?
Certainly there are leaders in the credit union industry who could probably fit the bill. Executives who know their business, are great speakers and can get people to follow them exist.
Credit union executives are not lemmings, and no one expects them to be. But when all is said and done, there needs to be a unifying force and someone needs to represent that force. An industry leader doesn't have to come from the trades or consultancies; in fact, it shouldn't. If true prosperity is to come to a cooperative industry, cohesion must reach a critical mass. And the rest must realize that you don't have to agree with every word out of that person's mouth or every action the person has ever taken to stand behind a great leader.
A unified rallying cry is necessary for a truly grassroots effort. Right now there are factions that just want to eliminate the NCUA or scuttle the trades or ignore Washington and keep within your four walls or merely stir the pot for personal gain. All of this nonsense is just a distraction from moving forward; it's not conducive to future success.
It was brought to my attention that my last column might have been misinterpreted to mean I'm for going along to get along-maintaining the status quo. That's absolutely not the case. The NCUA possibly needs some reorganizing and fresh blood in there. The trade groups may require some streamlining and efficiency. Expertise in many complex areas where credit unions have ventured or 21st Century banking has injected itself is needed across the board.
Sept. 24 was a huge day for credit unions. After the conservatorship of three corporates, the new regulation and the legacy assets plan, credit unions didn't have time to breathe (though there may have been a collective sigh of relief following two-plus years of great uncertainty). None of it was unexpected, but the NCUA taking the actions all at once did surprise some. As Ann South, CEO of $128 million Novartis FCU, described it, she felt "side-swiped." She said she expected to have to manage through the new regulation to decide the next course of action for her credit union, which has $20 million tied up Members United. But to also be explaining to her board members that their corporate was conserved was a bit of a shocker. As many in the industry have said, she was surprised it hadn't happened already, but she questioned timing all the actions simultaneously. In a reasonable manner, South added that she figured the NCUA had its reasons. Thinking things through and believing their might be more to something than you are aware of is what is needed in the credit union industry.
On the other hand, blind faith is not. Just as credit unions perform due diligence on their third-party service providers, they must keep an eye on the regulators. Ask questions and respectfully debate issues. You generally catch more flies with honey. And while every entity has screwed up along the way, that doesn't mean everyone associated with that organization is to be vilified.
Jon Rhodes, CEO of FedFinancial FCU, said the NCUA's plan seemed pretty well thought out. He's switching corporates though rather than recapitalizing the one he's at. FedFinancial, at $65 million in assets, can't afford the $300,000 it currently has at risk in Mid-Atlantic, he said.
Novartis isn't interested in recapitalizing Members United either. South said she's more inclined to recapitalize a corporate that wasn't part of the problem. At the same time she wouldn't hold former employment at a corporate against a potential hire.
Credit unions certainly didn't need for the corporate story to hit the mainstream press, but it inevitably did. The aftermath wasn't as bad as it could have been. The reasons behind that were that the NCUA was proactive in its sharing of information with the press and the American public is relatively numb to yet another financial services problem. The story lasted a day, maybe two in the mainstream media. Credit union executives I spoke to didn't hear much of anything from their members confusing corporates with natural person credit unions, which is good.
Evan Clark, CEO of Department of Commerce FCU and a CapCorp victim, said he was please with the NCUA's legacy assets plan. While the value of the bond was a bit inflated, he believes, he has no doubt they'll sell. Sandler O'Neill's Peter Duffy had the same sentiment, estimating 30 cents to 50 cents on the dollar.
Clark's a pragmatist though and said, "Credit unions just have to plug this into the formula and move on." Credit unions have bigger problems like improving their net interest margins and improving operational efficiencies.
And there have been positive signs for credit unions. Regarding the legacy assets, CUNA Economist Bill Hampel said the bonds in the legacy assets seem to have reached a plateau this year. ROA is at 60 basis points, and he expects that to hold over the next couple of years. Capital ratios have been stable around 10% and are expected to continue along that path.
Clark is so ready to get past the corporate debacle that DOC FCU made the decision to move from a correspondent account with Mid-Atlantic to covert $1.2 million to capital shares back in July.
Even though the regulation is final now, it is still in flux. By November, the NCUA expects to have more regulations out regarding corporates that came out of the comment period but were not germane to the specific issues raised in the proposed rule. And the final rule could potentially be amended as the agency realizes the side effects of the rule.
Main Street Financial FCU CEO Cary Anderson noted that the agency's level of transparency remains to be seen regarding the resolution of the corporates. He doesn't expect the bridge corporates to last for a 24-month phase out as provided for in the reg. Anderson sits on the board of Louisiana Corporate and said they've gotten calls from Southwest Corporate members interested in their services. The $109 million Main Street Financial just heard Sunday that all its capital shares in Southwest, $868,000, have been wiped out. Yet he's very pleased with LaCorp as well as EasCorp, where the credit union's also a member. He's not jumping the corporate ship-just moving to the stronger ones.
Be practical, reasonable and forward thinking. Be just what the credit union industry needs.
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