LAKE BLUFF, Ill.-Economy finally on the upswing? Not according to one analyst, who is predicting that 2013 and 2014 will be as bad or worse than it was 2008 and 2009.
That same economist does not believe most CUs are doing the right things the rest of this year to withstand another downturn.
"The worst is yet to come, and I don't see credit unions getting ready," said Michael Moebs, economist and CEO at Moebs $services. "This is the wolf at the door, and most credit unions are the two little pigs who built their homes with straw and sticks, instead of bricks. Credit unions have to build their home with bricks-by reducing expenses and increasing fee income."
Forces at work will cause the economy to take another nosedive, and additional earnings pressures are coming thanks to the Consumer Financial Protection Bureau, cautioned Moebs, who believes the agency will restrict overdraft fee income. That will make it a very tough year for financial institutions.
Adding to problems, the economy will plummet, according to Moebs, citing issues with the global markets-Greece and Spain in particular, and Europe in general-and the expiration of the Bush-era tax cuts effective in January 2013, decreasing take home pay for all American 10.9%.
The Real Problem
Bottom line: CUs must be prepared for the downturn, as well as sharply reduced margins when interest rates begin to take off in 2014.
"Here's the problem. While credit unions have seen an increase in net interest margin (NIM was 1.89% to assets in 2009 and 2.58% in 2011), much of that is due to reductions in provisions for loan losses (1.07% to assets in 2009 and 0.48% for 2011). That means credit unions have cleaned up their balance sheet, which is great. But when we take a look at expenses, we don't see the cleanup there (expense-to-assets ratio only down 1.9% from 2009). Credit unions above $5 billion are really controlling expenses. But the rest have not brought down their expenses, and most CUs have seen a loss of fee income (25.6% decrease in fee income from 2009 thru 2011)."
Moebs said that implies many credit unions are living and managing on the balance sheet. "That is their current perspective. However, they have to shift their focus to the income statement, bring down expenses and get paid for what they do. What do I mean by that? Credit unions are better deals than banks, and consumers will pay for that better deal. So if the credit union can save the member $400 over the life of a loan, I don't know anyone who won't pay at least $50 for that savings. Credit unions need to get paid for their great deals and right now they are not."
