U.S. Central drops plan to absorb corporates.

U.S. Central Credit Union has backed off its plan to merge with corporate credit unions, which had charged that the Kansas giant was stepping on their turf.

"That weighed heavily on us," James R. Bell, president of U.S. Central, acknowledged in an interview.

But even as it pledges to stick to its original role as the industry's liquidity center, U.S. Central is in the midst of myriad changes.

The restructuring involves building capital, selling a subsidiary, reducing staff, and possibly charging for services it now gives away.

It is also searching for a new president, as Mr. Bell has announced that he plans to retire by the end of 1995.

U.S. Central promoted a merger back in September as a means for smaller corporates to widen the range of services for their members.

Few corporates, however, expressed interest in merging, Mr. Bell said. Other corporates accused U.S. Central of positioning itself as a direct competitor.

But corporate outcry wasn't the only reason the plan was dropped. U.S. Central also needs to build capital.

Currently U.S. Central has a primary risk-adjusted capital ratio of about 4.1%, which has been criticized as dangerously low by legislators and the General Accounting Office.

Higher capital also would allow U.S. Central to expand into new areas, such as providing settlement services for credit unions.

Pressure from corporates also has prodded U.S. Central into selling Corporate Network Brokerage Systems, a broker-dealer that works directly with credit unions.

Some corporates charged that the system, founded in 1989, competed directly with them.

"CNBS has been perceived by corporates as an avenue for U.S. Central to reach" regular credit unions, Mr. Bell said. "Getting that concern behind us is one good reason to sell it."

U.S. Central plans to offer the brokerage -- which has been profitable -- in the first half of 1995, Mr. Bell said.

With an eye toward increasing returns to corporates, U.S. Central also is cutting costs by slashing staff and centralizing some of its operations.

Seventeen staff positions were cut in late November. Further, smaller cuts to the 145-person staff may be made, Mr. Bell said.

The cuts, coupled with centralizing U.S. Central's member service area and some other departments, allowed U.S. Central to reduce its 1995 budget to $14.9 million from $17.5 million.

"It became obvious we had to control and reduce our operating expenses," said Kevin Keller, a spokesman for U.S. Central. "That's money we can't put back into the pockets of our members."

U.S. Central also is evaluating the fee structure of services it provides corporates.

Richard Johnson, a U.S. Central director and president of Western Corporate Federal Credit Union, said he favors charging for some services U.S. Central now gives away, such as lines of credit.

"U.S. Central is a business and it should charge for the services it provides," he said.

Fees would help improve the investment returns U.S. Central can offer corporates, Mr. Johnson said.

This is more important than the free services.

"What do you judge an insurance company on -- on the free balloons they give you, or do you judge them on rates?" he said.

U.S. Central is seeking to replace Mr. Bell by the end of 1995.

The board is searching for candidates both within and outside the industry, and sources said they want someone with investment experience.

"It's a fun job, but it's stressful and it will challenge anyone," Mr. Bell, 61, said. "It's time to take a break. I haven't taken a vacation since I got here."

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