Bridging the Gap to the New Corporates Model
For those who thought there might be wiggle room in the NCUA’s willingness to tolerate a merger of Tier 1 corporates, unambiguous words came from Scott Hunt, director of the NCUA office of corporate credit unions, at a panel discussion about the future of corporates at the New Jersey Credit Union League’s Reality Check conference in Atlantic City, N.J.
Talk about a reality check. Under persistent questioning, Hunt said, "To allow a Tier 1 merger to happen we would run afoul of our duties. Our board has categorically said no. We would in effect be building the biggest competitor within the corporate system and we will not do that."
Bridge corporates are, in effect, wards of the regulator, and the NCUA will not consider a merger until they are capable of functioning independently, Hunt explained, at which point they would have ceased to be bridges and would instead be newly chartered entities. As to whether those entities might be given NCUA’s blessing for a merger, Hunt was less definitive, but he did not appear to rule that out.
Another point of note Hunt made was this statement: "NCUA has not expressed a position as to whether the credit union system needs a corporates network. However, I see value in such a system. Corporates can provide value. But every credit union needs to make its own decision. As for the bridges, we need to be prepared to liquidate them if there is not sufficient support from members."
Hunt’s comments may have been the show-stoppers during the hour-long panel, but he was joined by four distinguished leaders among corporate credit unions, each of whom brought perspective to the discussion.
Chuck Furbee, CEO of Members United Bridge Corporate, said, "Corporates are a very viable concept. They stand between natural person credit unions and institutions that are not always friendly. The Federal Reserve," continued Furbee, who worked in the Fed for some 27 years before getting involved with credit unions, "is not designed as a retailer of services. The Fed can make it difficult to do business with them. It would be a challenge for smaller credit unions to get the services they need directly from the Fed. That is where a corporate comes in."
Bob Fouch, CEO of Corporate Central, extended that theme with his statement that "our members view us as a strategic partner and they have a pride of ownership."
Jay Murray, CEO of Mid-Atlantic Corporate, added, "The history of corporates is as a liquidity provider. The industry needs liquidity going forward. When credit unions begin to lend again, they will need to tap into liquidity and I believe that will come from corporates. What does not change is the cooperative model. We are a credit union’s credit union."
Lee Butke, CEO of Corporate One, continued that theme with his assertion that "Credit unions need access to adequate lines of credit. Corporate credit unions can be their strategic partners."
And then the panel faced the question of the year for corporate credit unions: how many will be left standing after the NCUA October capital requirements deadline?
There are no facile answers, but there is something of a paradox, alluded to by Members United Bridge’s Furbee. "The keyword going forward is scale. It has been set up that way by the new [NCUA capitalization and investment] rules." The paradox enters in that the fewer corporates there are, the greater the ability to scale, but is that the result natural person credit unions want? Or do they want to find solutions outside the corporate system?
A poll question that was asked of the audience provided much room for thought: 37% said they intended to recapitalize a corporate credit union but 38% said they did not.
"It is up to the members," said Furbee, speaking for Members United Bridge in particular, though his remarks may apply more broadly. Members United Bridge will disappear for certain, he said, but it will be merged into a new corporate only if it gains sufficient capital from members. Without that, it will just disappear, and the same can be said of many other corporates.
No one will know for sure what will happen until later this year, however, which means there will be more tense months facing most corporates as they face extinction or survival.