There may be only four or five corporate credit unions within 10years. There isn’t that much business out there. The small won’tsurvive,” predicted John Fiore, CEO of Motorola Employees CreditUnion and a key figure in the recapitalizing of Members United asAlloya. “Within a couple years we may be down to a dozencorporates,” Fiore added.

Many eyes may be on the fate of Western Bridge and U.S. Central,with the NCUA set to announce what will happen to them as early asthis month, but that may miss what is transforming the corporatecredit union world. “We will see a lot more consolidation,” Fiorepredicted.

Do the math. As of this writing there are 24 corporatesstanding, but many have announced plans to merge out of existence(Treasure State into Kansas, VACORP into Mid-Atlantic, Southeast into Corporate One, West Virginia into VolCorp andLouisiana into Corporate America). Western Bridge and U.S.Central are on short leashes as the regulator seeks to sell themoff, in whole or part. Iowa Corporate has announced it will shutterby year end. Subtract them and the number of surviving corporatesdrops to 16.

That is a one-third attrition within a year, but, predict theexperts, we have seen nothing yet.

Staying alive as a corporate simply is going to require hugevolumes of payments and processing business, and there just is notenough of that to support a spread out network, said theexperts.

“Volume and economics are the strategic reason forconsolidation,” said SunCorp Executive Vice President BrandtPeterson in explaining why this trend toward merger is gainingsteam.

Jim Zimmerman, a senior executive with CenCorp, agreed: “We doexpect that there will be further consolidation of corporates,” hewrote in an email.

What is going on? Experts are scrambling to explain theshrinking corporate credit union population. Dennis Dollar, aBirmingham, Ala-based credit union consultant, elaborated. "I amconvinced that we are only now seeing the beginning of the mergertrend in corporate credit unions. It will accelerate as the newNCUA rules come into play and the need for increased capital growsunder the regulations. Business plans will have to adjust in orderto remain compliant with the new rules, and economies of scale willbe required to make the business plans work. The result will bemore corporate mergers in the next several years.”

Olympia, Wash.-based credit union consultantMarvinUmholtz elaborated on the why of mergers. “The paymentssystem business is very volume sensitive with questionable margins.I find it hard to believe that under the new business model all ofthose corporates will be able to keep up with the new NCUA rule's10-year escalation of capital requirements. The consolidation willlikely occur at a moderate pace over time rather than in a bigbang. That's just the way the NCUA would like it to happen. Twelveby 2015 might be too low, but by 2020 it would be too high.”

A huge factor is that, under increasingly restrictive NCUAregulations, corporates are limited in how they can make money, andthe emphasis is now on low-risk, low-margin activities such as itemprocessing. “Volume now is king,” said Fiore. High-risk,potentially high-reward lines of business, such asinvestments, are significantly downplayed under the new NCUAregime, but this means that corporate credit unions to survive haveto compete against low-cost correspondent banks.

As those forces come together, Fiore offered this starkprediction. “I do not think the regional corporates can survive.Alloya is doing business coast to coast, and that is what thesurvivors will all do. There is no other way to attain thenecessary volumes.”

Dollar said there is a way for regional corporates to survive,at least in the near term. “Some smaller, single-state corporatesmay be able to make it by raising the needed capital and thenpartnering with larger corporates for some services.” By thatmeasure, these regionals may in effect become de facto branchoffices of a larger, national corporate, but they would survive inname.

Another factor, said the experts, is that it is apparently lessexpensive in every way, monetarily as well as in terms ofreputation costs for the industry, for weak corporates to mergeinto stronger partners than to be conserved by the NCUA. An upshotis that the indicators suggest continuing NCUA support for mergers.(Through its spokesperson David Small, NCUA declined to comment oncorporate credit union mergers.)

Either way, a bottom line with corporates may be that less ismore. That is how Dollar sees it. “The credit union industry wouldbe better served with fewer strong corporates than with a largernumber of corporates teetering on the brink of compliance with thenew capital standards and struggling to maintain a business modelfrom which they can bring value to their member creditunions.”