MONTEREY, Calif. — Richard Johnson was the first corporate credit union CEO taking the helm at Western Corporate, then called California Central Credit Union, in 1976. He began with three employees, who were transferred from the California Credit Union League. At the time, corporates offered only one service: overnight settlement accounts.
Credit Union Times sat down with Johnson at the Big Valley Educational Conference on March 18 and discussed the past, present and future of corporates.
CU Times: What were some of the challenges you faced back in the early days of corporates?
Johnson: When I first took the job, I applied the leadership principles I learned in the Marines, which includes the important step of observation. So right away, I went to Kansas to observe what their league had done and talked to other states that were interested in doing what we were doing, like Texas. I realized right away that none of us knew where this was all going for sure, and I also realized I didn’t know much about money, and the other guys didn’t either. So, I went to CUNA school and asked Jim Likens to put together a course on how to transfer funds, set interest rates, all the things you need to know to run a corporate. He put together a grueling three-day crash course, and from 7 a.m. to 9 p.m., the five of us who took that first course came away with at least some appreciation of what the world of money was all about.
Also, back then, all the credit unions in the country had bank accounts and free checking. I looked into that and discovered it wasn’t free at all. In order to get the free account, they had to deposit all their overnight funds there, and the bank didn’t pay anything on it. So I thought if we could get that money into the corporate, we could at least pay them for it. It was a tough sell at first, because people didn’t trust us. They said, and rightly so, ‘Who the heck are these guys and what do they know?’ It was very hard to get the business at first. If it weren’t for the league presidents recommending us, we never would have made it.
CU Times: How has regulatory oversight changed?
Johnson: We didn’t have any regulation at first. Some people got a little too heady about their success and made investments they didn’t know how to make, and the rest of us had to bail them out. Four or five of us decided the industry needed disciplines, so in the late 70s, through trial and error, set up some disciplines and became self-regulated. It’s interesting to note, we didn’t go to the NCUA or Congress first, and really, they weren’t interested in us anyway. There’s no way that could happen today. The NCUA was always sold on what we were doing, they were great cheerleaders for us since day one, but as corporates got bigger, they started to see some failures, and in response made some tough regs. I thought it was bad because it restricted growth but also good because it made us think twice about what we were doing. We had lots of fights with the NCUA, but they all turned out to be good in the end.
CU Times: When did WesCorp start offering processing and other technology-driven services?
Johnson: Share drafts were still very new when we started, banks had been doing them for awhile, so they provide settlement and clearing services, but it was very expensive. Credit unions asked us to provide the service, and I was hesitant at first. We didn’t know how to do it and the equipment was very expensive, but I soon realized the banks had terrible service and pricing, and they weren’t much competition. So I hired somebody to do it; and obviously, it grew to become big competition for the banks, and they stopped doing it.
CU Times: How has competition among corporates changed?
Johnson: At first, corporates didn’t compete with each other. We turned away credit unions from other states, told them to join their own state corporate, but eventually we stopped doing that. The competition has been good for credit unions, they’ve been the ones to benefit from it. Small corporates think that large corporates want to eat them up, but that’s not true. If a small corporate does its thing, provides good service to its members, they’ll be okay. But, if a merger is more beneficial to members, that’s a good thing, and I think mergers will continue. There are some really good small corporates out there, though, like Louisiana Corporate. They’re the smallest corporate, and yet they provide excellent service to their members. Some of the small corporates were making a living on check processing, but now that’s going away and they’re hurting.
CU Times: What kind of impact do you think corporates have had on the credit union industry?
Johnson: Corporates are the second best thing to happen to the industry. The first was the birth of credit unions in the U.S., and the second was the formation of corporates. We started from scratch–zero dollars–and now handle billions of dollars every day. That’s impressive. I think the main thing corporates provide for credit unions right now is safety. U.S. Central and WesCorp, in particular, have great expertise in investing, and I may be biased, but I think WesCorp has changed the way credit unions invest. They really know what they’re doing, not just nationwide, but worldwide.
No other financial institution in the world wakes up each morning and asks, ‘What can I do to make credit unions more successful?’ Just like credit unions make their members more successful, that’s the goal of corporates, too, and while the banking industry offers the same services, they report to their stockholders. They’re not in it for the banks they service.
CU Times: What do you think about the current subprime situation and the practice of investing in mortgage-backed securities?
Johnson: This is just a bump in the road. I believe corporates had one of their best years last year, so that tells you something. Corporates are so safe, all this you read about Bear Stearns is just money that’s going to come back to credit unions as people realize they need safety.
As for investments, I’m not as close to it as I once was, but I have full faith in the investment talent at WesCorp. They take some risks but manage them extremely well. Overall, corporates just aren’t big risk takers. I know it’s not business as before, all the things happening today are new to them, but they’re so involved in their jobs and pay such close attention, I don’t think anybody needs to worry. The fact that corporates don’t invest in anything below AA securities should give plenty of confidence to investors.
CU Times: Is there a product or service corporates should offer that they don’t?
Johnson: There’s one they offer, but credit unions aren’t buying yet, and that’s the lockbox for loans and credit cards. I’m amazed credit unions have been so slow to pick up on it, because they earn on the money faster because it goes straight to WesCorp, instead of wasting a day of processing at the credit union. I suppose it’s hard to get members to change–to teach them to send their payments to WesCorp instead of the credit union–but the effort is definitely worth it.