Corporate Merger Mania on the Horizon?
There may be only four or five corporate credit unions within 10 years. There isn’t that much business out there. The small won’t survive,” predicted John Fiore, CEO of Motorola Employees Credit Union and a key figure in the recapitalizing of Members United as Alloya. “Within a couple years we may be down to a dozen corporates,” 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 as this month, but that may miss what is transforming the corporate credit union world. “We will see a lot more consolidation,” Fiore predicted.
Olympia, Wash.-based credit union consultant Marvin Umholtz elaborated on the why of mergers. “The payments system business is very volume sensitive with questionable margins. I find it hard to believe that under the new business model all of those corporates will be able to keep up with the new NCUA rule's 10-year escalation of capital requirements. The consolidation will likely occur at a moderate pace over time rather than in a big bang. That's just the way the NCUA would like it to happen. Twelve by 2015 might be too low, but by 2020 it would be too high.”
A huge factor is that, under increasingly restrictive NCUA regulations, corporates are limited in how they can make money, and the emphasis is now on low-risk, low-margin activities such as item processing. “Volume now is king,” said Fiore. High-risk, potentially high-reward lines of business, such as investments, are significantly downplayed under the new NCUA regime, but this means that corporate credit unions to survive have to compete against low-cost correspondent banks.