ST. LOUIS-Beware the "albatross" when purchasing a branch from another institution, cautions Kevin Blair, CEO of NewGround here.
What factors should credit unions be weighing when considering buying a former branch of another financial institution?
When credit unions develop their distribution strategy, they must first understand how the location fits in to who they are and what members they want to serve. If they've already done that background analysis, and have determined the general location fits their profile, then they can save time and money by being in a market relatively quickly.
There are so many strategic issues that go into the decision. Too many financial institutions only consider price, and do not consider other topics.
Is it correct to assume a branch probably is in a poor location if another institution gave up on it?
Credit unions must be careful of the stigma of the former location. If there is a merger that results in disposal of a branch, it is the poor-performing branches that are disposed of. Details such as turn lanes or access from highways must be examined. If people can't see the branch or can't get to it, that might be why it is for sale. Also, the cost of remodeling to make sure it no longer looks like the former institution can be almost as expensive as building a new branch.
All of these factors must be examined very closely before buying a branch. A credit union does not want to be saddled with an albatross.
Is it cost effective to buy a branch of another institution? Or should they build a new branch in a prime locale?
The turbulence in the market is creating so much anxiety in credit unions. There is a lot of pessimism in consumer confidence, and providers are pulling back. But that is the best argument for advancing today. Credit unions are in incredible position to take advantage of the fallout and attack the marketplace. They can move quickly into a marketplace by buying a building and changing the sign. It's very tempting, but they must make sure it's right.
With land prices dropping, is it a good idea to "bank" a location for the future?
The cost of real estate, especially raw land, is down. The housing fall is going on right now, and the falloff in commercial construction will come soon after. There is an opportunity to land bank-acquire a parcel and sit on it for a year or two. But don't buy the cheapest location; buy the most strategic one.
