Cincinnati-based Fifth Third Bank continues to gain visibility as an alternative to corporate credit unions, but senior bank executives also made plain that their approach to credit unions fundamentally differs from a corporate’s. "For us, this is about a business relationship," said Kevin Jones, vice president and director of correspondent banking. And this difference impacts the relationship on numerous fronts.
A natural person credit union has an ownership stake in its corporate. Not so with Fifth Third, and that is crucial.
Understanding the differences, suggested Jones, is now becoming critical because many natural person credit unions are uncertain about what their next steps will be. Will they choose to put capital into a corporate or will they seek out alternatives?
"Right now, many financial institutions are uncertain about their next steps. They are hesitating to make broad leaps," said Jones.
Another complication: "For some in credit unions, they see banks as a case of the Hatfields and McCoys," said Jones. That is, as fundamental rivals, forever in opposition.
But more than 800 credit unions already have crossed that perceived line and signed on as Fifth Third correspondent banking customers, said Hideo Core, vice president and correspondent banking team lead at Fifth Third Bank
By the numbers, Fifth Third said it has opened 23 new accounts for credit unions to date in 2011. In 2010, it opened 88 new accounts. In 2009, 63 new accounts.
Fifth Third declined to forecast how many new accounts it hopes to open before 2011 runs its course, citing the thick uncertainties in the credit union universe.
But, said Jones, "many credit unions are hesitating to recapitalize corporates. We are fielding many calls."
Not every call is received with enthusiasm, however. Core indicated that the approximate minimum size credit union for Fifth Third’s correspondent services is $250 million. Smaller entities would be considered "if the business relationship justified it," said Core.
Doug Wolf, vice president at CUSO ProDraft Services, which brings correspondent banking services to credit unions via Fifth Third, said that of the 42 current credit union customers at ProDraft, none are as big as $250 million. Many are under $100 million. So, he suggested, there are ways around the stated Fifth Third minimum.
What there isn’t a way around is Fifth Third’s focus on business relationships as a key difference to how it operates, said Jones. "What we are building are business relationships. There has to be a business case."
Jones added that this extended to decisions to offer, or to decline to offer, lines of credit to credit unions. Fifth Third has declined to do so in at least some instances. "We will take a different approach to extending credit to a credit union. We will be extensive and thorough in our credit review. It has been an obstacle to some credit unions," said Jones. "We will turn down requests when we believe the institution is not creditworthy."
Wolf at ProDraft indicated that none of the CUSO’s customers that applied for a Fifth Third line of credit have been turned down, but, he said, the lines of credit offered have been smaller than what a corporate might have extended. "These lines from Fifth Third are meant as emergency, short-term loans."
Added Jones: "We are looking for good quality customers who happen to be in much the same business we are in, but we review them as businesses. What we want are good quality customers to whom we can provide services."