Greed is Driving CUs to Convert to Banks

Career Development Fredrickson said the early to mid-1990s saw thousands of bankers out of work due to mergers and consolidation. He worked at a local university, the Salvation Army, ran a local community development foundation, worked in the mortgage business, became an investment representative and a grant writer. In 1994, he stopped working for a spell in a semi-retired phase when the credit union job opened up. “It seemed like a great fit,” Fredrickson said. “Turns out that I’m really a credit union person. I wanted to be a part of something of value and be able to contribute to something.” Fredrickson’s banking roots are similar in some respects to credit unions’ roots since D&N Bank was at one time an S&L. “I grew up in the old savings and loan industry when we were still owned by our depositors,” he said. Meanwhile, the credit union – located in a historic, rural area surrounded by Lake Superior and 600 miles north of Detroit – didn’t have trouble with growth, Fredrickson said. It had indeed grown very rapidly over the prior decade in membership, assets and deposits. But loan growth had not kept pace with deposits. MTEFCU is in the midst of a campaign to educate its FOM on the variety of loans it offers, wooing applicants with the “lowest rates and fees in the area.” “When we do have to charge a fee, we charge 40%-60% lower than the banks with the exception of one good, local community bank (here),” Fredrickson said. The former banker respects the other six banks in the area saying they offer alternatives and have helped to generate a lot of deposits. “The trick is to lend them out,” Fredrickson said. One difference he’s noticed with credit unions is their straightforward balance sheets. For MTEFCU, its investments, loans, buildings and equipments. All of its net worth is retained earnings and every dollar of deposit growth equals asset growth. The credit union is 70% lent out and is aiming for more than 80%, Fredrickson said. “This isn’t rocket science,” he said. But he’s also noticed there’s a lot of pressure inside the industry to increase non-interest income either through raising fees, selling more products or coming up with more fees. “I’m still learning but I don’t want to ride on the backs of members through fees,” Fredrickson said. ” I am a proponent of non-interest income but not at the expense of members.” Cautious on MBLs He said another way that will help elevate MTEFCU’s image beyond its original member base is selling insurance but the credit union doesn’t “ want to push it down members’ throats.” Stable income through strong ALM, net worth and liquidity has quelled any temptation for rapid growth, he added. He’s not completely sold on offering business loans either. “I’m really colored by my S&L origination” because of “what happened in the mid 1970s” when S&Ls were deregulated and were able to make commercial loans, issue credit cards and pay higher rates for deposits. For that matter, Fredrickson is skeptical about credit unions becoming “bank-like.” “I see a lot of forces within the credit union industry encouraging offering brokerage services and major business banking services. I’m leaning very heavily to the traditional. I like being able to provide cheap loans to people who need them. If you can remember, credit unions were created to pool (people’s) money for loans.” Fredrickson doesn’t mince words on those credit unions that have converted to banks or those that are considering the move. “It’s pure greed,” he said. “You would really have to convince me otherwise. Once you’ve sold yourself to New York bankers, you’ll get sold three or four more times. There’s absolutely no (reason to convert) that is related to the members.” Fredrickson recalls when D&N Bank converted to stock and generated $25 million in capital overnight. The trouble came when it had to invest the money in a way that supports traditional business, he said. The bank ended up having to “borrow a whole lot of money and (invest it).” The loans were not made by the bank and were not invested in the local area, he recalled. Ultimately, the bank ceased to exist and 200 jobs were lost. “If there is a part of the credit union industry that is going away and it is allowed to happen, we will lose something real important,” Fredrickson said. “I listen to some of the politicians on (the industry’s) tax status who say `we’re behind you but you better be serving a need’,” he said. Converting to a bank also means more nervous tracking of the stock market. “You’re constantly looking at earnings each quarter and what that will do to the stock,” Fredrickson said. “You become short-term oriented.” The danger for members is the wild, wild west when it comes to paying for services. “Rates and fees will be whatever they have to be to feed stockowners’ interest,” he warned. At MTEFCU, Fredrickson said his first year has been “fun” and he’s very satisfied with the progress the credit union has made. He considers his new role as a homecoming of sorts. “Joining the credit union is like coming home for me,” Fredrickson said. “It’s good to once again be part of an organization whose only concern is the welfare of its members and local area.” -