MADISON, Wis. - Despite taking a hit from investment losses tied to the subprime market, CUNA Mutual said its 2007 financials show a record year for earnings.
While the figures are as of yet unaudited, CUNA Mutual CEO Jeff Post told Credit Union Journal the company will report an operating gain of $220 million and net income of $200 million. Over the past three years the company has added $600 million in topline growth and has increased payments to CUs by $440 million to $1.7 billion. Post said none of the increased revenue has “come on the backs of credit unions,” but instead reflects improved portfolio performance, cost reductions and income from new services.
But not all the numbers were rosy. Post said the company had to write off some $150 million in losses from various mortgage-backed securities in 2007. Out of that, he said the company still expects to generate $17 million in cash flow. “A lot of securities are impaired,” said Post. “But the net-net is we realized a $20 million loss on the entire investment portfolio.”
The result: CUNA Mutual has adopted a cash-is-king approach, holding two to three times the cash it would typically hold.
Losses from plastic fraud, a pet issue of Post’s and CUNA Mutual, will likely amount to $25 million, which Post called a “decent year.” The TJMaxx case is likely to cost the company more than $20 million, but that is a 2006 loss as it occurred in December of that year. “All it takes is one big breach,” said Post. “The good news is there were no big breaches in 2007.”
Post said it’s unlikely CUNA Mutual will raise rates for plastic card coverage in 2008, and it may even lower premiums while increasing coverage. “The future lies in some kind of technology that was not invented in 1969,” said Post. “It’s some type of smart technology so that even if I have your card number and name, it’s meaningless. There is some of that out there already.”
Student Lending Program On Tap
CUNA Mutual is planning to roll out a student loan program for CUs, along with expansion of the crop insurance program it debuted in 2007. While declining to identify with whom CUNA Mutual will be partnering on student lending, Post said it will be a “huge, huge deal.” Plans call for a web-based loan application open to any borrower. Once that borrower has identified a home address and university or college, he or she will be presented with the option of joining a credit union. If the member signs up, he/she will receive a 25-basis-point reduction on the loan’s APR. The prospective member would have to go to the credit union to join. Other potential revenue streams will include opportunities to sell dorm insurance, laptop insurance and credit cards. In addition said Post, plans call for securitizing the loans and selling pieces of it back to CUs.
Student lending, he noted, is a $23-billion industry that is going through a great deal of flux right now. “It’s exactly the right time to get into it,” said Post. “It will fill the gap between government loans and college aid.”
On the crop insurance side, plans call for better connecting CUs with the distribution channel. “We want to introduce our insureds to our credit unions,” he said. Additional opportunities lie in reaching out to farmworkers and migrants.
