NASHVILLE-Early discussions of how the corporate CU market will evolve are initially focusing on the future of payments, with some forecasting regional corporates combining to offer such services, or new CUSOs being formed to take on the task.
That's according to the leaders of four corporate credit unions who spoke with Credit Union Journal about what lies ahead as options for credit unions seeking answers as a result of the failure of U.S. Central, WesCorp, Southwest Corporate, Members United and Constitution, and the new corporate regulations that have been put in place by NCUA. While there is no clear solution, the consensus is that the remedy will come from within the credit union system, with little or assistance from vendors or banks.
There may also be aggressive plays from strong corporates to pick up pieces left behind by the demise of U.S. Central, WesCorp, Southwest Corporate FCU, Members United Corporate FCU, and Constitution Corporate FCU. But those who spoke with Credit Union Journal do not expect any of that to begin soon, and certainly not ahead of corporates securing permanent membership capital and retooling their operations to improve efficiencies.
"The options are wide open now," said Rick Veach, president of Volunteer Corporate CU. "It's hard to say what will happen. There is a lot of talk going on with a lot of different parties."
Veach believes something "interesting" will come from the operations of the failed corporates simply because they control large volumes of payments. "If those can be put together, maybe not all together but combined with other corporates, a very efficient system could be assembled."
Sources agreed that vendors, such as data processors, cannot offer the scale needed to deliver the most cost-effective solutions. "The best answers lie with what is left of the corporates, because we have a tremendous amount of expertise among all of us, and we offer the greatest potential to help credit unions keep costs low," concluded Veach.
In Birmingham, Ala., Corporate America President Thomas Bonds does not rule out the possibility that members of the conserved corporates may form a new corporate credit union. "They will have to recapitalize and there will be hurdles to jump through. But that is where some folks are leaning right now."
Bonds said CUSOs formed as the result of collaboration between natural-person CUs and corporate credit unions could emerge. "You can go the CUSO route, but the CUSO must have access to the Federal Reserve system through some type of financial institution."
In Tallahassee, Fla., Southeast Corporate FCU President Brad Miller sees payment services CUSOs as a strong likelihood. "My hope is that collectively, as a corporate system, we can deliver a payment CUSO that keeps volume aggregated and the continuity of services within the credit union system."
To get there, surviving corporates must follow the letter of the new corporate rule and gain efficiencies. According to Miller, that means consolidating some back-office functions. "We have to run more efficient shops and find areas where we can streamline operations to provide greater value to natural-person credit unions. That is the best solution, in my opinion-a little easier said than done. But hopefully we are evolving toward that."
Lee Butke, CEO of Corporate One FCU, Columbus, Ohio, believes strongly that corporates-using their own balance sheet-can become reliable and effective liquidity providers, especially when interest rates eventually rise and spreads narrow. "For example, Corporate One is not using U.S. Central. Our balance sheet now hovers at $3 billion. We have lines of credit that are established and tested quarterly, and total over $1 billion. We have that ready and waiting for the credit union movement. That is a critical need that together, as a network, we need to formally address."
