A Different View On What Lies Ahead For Corporate CUs
A quote from a credit union CEO appeared recently suggesting that the mergers of corporates should be expedited and that the final number will probably be between six and 10.
The reasoning was financial in nature and centered on the ubiquitous economies-of-scale argument. There is little question that from a purely black-and-white numbers perspective he is correct.
Fortunately, reality outside the world of spreadsheets and projections is anything but monochrome. If the future always followed the law of numbers and statistics the Detroit Pistons wouldn't have been celebrating a championship over the heavily favored Los Angeles Lakers this June.
While it is entirely possible, maybe even probable, that there will one day be only a small number of large regional corporates, that arrangement won't remain for too long. New smaller versions of corporates will emerge in various locations. Whether these organizations are called corporates or CUSOs, or some new acronym no one has dreamed up yet, they will serve credit unions in a corporate-like fashion. Let's call them Corporate Light or, even better, Low-Carb Corporates. These new institutions will be created by a few enterprising executives and credit union visionaries that have a keen eye for opportunity. This particular opportunity will be born less out of financial reasons and more out of emotion and identity. How did I come up with this wild prediction? By examining recent history.
The banking industry has gone through merger mania but community banks are still popping up like weeds. In fact, there are people that make a career out of starting small community banks, growing them to a certain asset size, merging them into a larger entity, and then create another community bank. How can this happen? The mega-banks have the so-called economies of scale. How can a small financial institution compete against the Citibanks and Wells Fargos of the world? Because many consumers feel that a smaller bank will look out for their best interests better than a large conglomerate. We rarely hear anyone say "I love Bank One, or Chase, or whoever the heck they are calling themselves today!"
Similarly, no one speaks with much affinity about the large regional corporates that exist today. Sure, some CEO's may talk about the incredibly low pricing they received from one of the multi-billion dollar corporates out there. Few, however, would say, with a gleam in their eye, "That's my corporate!" or "They really take care of me there." Over a decade ago, when I had the pleasure to begin working in the corporate credit union industry, many CEOs did say that. They felt a kinship that came from a perceived psychological share in their corporate, and not just the membership shares that necessitate ownership. Of course that was when corporate staff truly did feel as if we were one of the credit unions, and not simply stating it as if we were trying to make ourselves believe it.
Unlike the banking industry, merger mania hasn't completely taken over among corporate credit unions yet, and there are still corporates that do share a close connection with their members. They are the smaller corporates that are still primarily serving one state or niche. Despite the cries for consolidation and the competition from regional corporates, they are still doing well and maintain strong support from their membership. Maybe it's because they have something even more valuable than asset size-an identity.
Walking Away From Mergers
In recent years a number of boards and corporate credit union executives have walked away from mergers. When they are first announced to the press, the expected economies-of-scale speech is made. Fortunately, once board directors delve deeper into the possible unification of the institutions they helped to assemble and grow, a different picture materializes. They examine corporate mergers of equals that have taken place previously and the problems that have occurred. It is then they come to the realization that with the gain of assets and efficiencies comes one loss that is often too difficult to bear-the loss of corporate identity. They also begin to understand, as has been stated by some corporate CU leaders, that there will always be a place and a need for smaller niche players in the marketplace.
So although the optimum number may be between six and 10, and the industry may eventually get there, the landscape won't stay that way for long. At some point there will be one too many statements of the kind that are voiced in some areas of the country today such as:
* "I don't know anyone at my corporate anymore."
* "My corporate is gone."
* "The corporate is just another vendor."
And, thus, the creation of a brand new niche corporate will be reported in the trade publications-probably started by a group of credit unions not pleased with their six to 10 choices. They will understand that this is a people business, not a numbers game. As member/owners people want to be a part of an idea that stands for something, not a large pieced-together conglomerate that stands for nothing.
Ken Bator is president of Bator Training and Consulting, Naperville, Ill. Mr. Bator can be contacted at 630-854-6380 or at kbator