COLUMBUS, Ohio -
Representatives from corporate credit unions in several regions of the U.S. told the Credit Union Journal that the once taboo "rate shopping" by natural-person CUs no longer ruffles any feathers. It has become accepted practice for natural-person credit unions to belong to multiple corporates-as many as five or six, they reported.
Instead, the corporate market, which has seen its own share of mergers, in many ways reflects that of the credit unions it serves, often turning to the similar strategies to attract new business from credit unions.
Credit Union Journal spoke to four corporates that have disparate and wide fields of membership. All four were open to credit union in at least 39 U.S. states, topped by Members United Corporate FCU's mark of 45. Ron Koza, chief investment officer for Warrenville, Ill.-based Members United, said the recently formed product of a merger of Empire and Mid-States Corporates is often able to bring in new members through word of mouth.
"Credit unions are looking for more opportunities to make investments," he said.
The Number That Matters
But the number of credit unions a corporate serves is less important than the percentage of the CU's investment portfolio that corporate captures, noted Koza, as credit unions with a higher percentage of investable funds will move to diversify their investments. "On the other hand, credit unions with high loan-to-share and smaller investable funds ratio are more likely to maintain a balance in their local corporate. A lot of times, that money is used to pay settlements.
"We've seen natural-person credit unions' barriers falling-there is more crossover among SEGs and wider fields of membership-and we are seeing the same in corporates" said Koza. "Corporates speak of a core market. Fifteen years ago, they might have been the only corporate in the area. Now, credit unions are looking for better deals, and corporates need to be more competitive. Corporates need to be able to provide the products and services credit unions need."
Similarly, Bruce Fox, executive VP and CIO with Dallas-based Southwest Corporate FCU, which has member credit unions in approximately 41 states, noted "there probably is not as much worrying about stepping on toes as in the past. We work with credit unions all over the country, and a member is a member, so it is not an issue with us."
As for a "hostile takeover" bid among corporates that might be similar to that of Wings Financial FCU to Continental FCU, Fox dismissed the idea, saying such an unfriendly merger bid is "outside of what corporates can do."
From Southwest's perspective, we serve our members and they are all over the country. There is a lot of rate shopping because credit unions are looking at several corporates as an investment option."
Jim Hayes, senior vice president of business development and marketing for WesCorp in San Dimas, Calif., noted rate shopping has become "more and more accepted" in recent years.
"Corporates were allowed to have a national field of membership a number of years ago. That clearly opened up competition, but it has taken a while," he said. "WesCorp has members in more than 40 states. There are more and more credit unions that belong to multiple corporates."
Rethinking The Approach
Like natural-person CUs, corporates have had to rethink their approach to business development. The larger corporates have set up internal sales departments and are calling on more credit unions. At Corporate One in Columbus, Ohio, VP/CIO Bob Post said corporates have come to expect natural-person credit unions to come to them to view rate sheets online, or in response to marketing e-mails.
WesCorp's Hayes said its member CUs can request a daily e-mail update for the updated rates. "I think every corporate has its core group of members who will always do business with their local corporate, and that will probably always exist." Said Hayes. "But it is less true today. Most have many members in other states now."
Southwest's Fox said that corporate, too, sends daily e-mails with updated deposit rates. "We have our rates updated daily on our website, which gets about 3,000 hits per month, so we know there is a lot of interest."
Corporate One also relies on the human factor, with a sales force of four licensed investment representatives.
"They are assigned accounts with natural-person credit unions in all parts of the country, and they solicit relationships with new credit unions all over the country," Post said. "Sometimes we are more aggressive than other times. I think we have been the model for that strategy in the past six years."
The New 90-10 Rule
All of the corporates expressed a belief that the increased competition has yielded major benefits for their natural-person credit union members.
Some went so far as to say other corporates are not their focus.
WesCorp's Hayes estimated the corporate network competes "maybe 10% of the time," and cooperates 90% of the time.
"With certificates of deposit, we don't consider other corporates to be our competition; we think of the agency market as our primary competitor," he said. "We price about 15 basis points above agency securities. The agency portfolio is about $70 billion in total investments; the corporates hold about $30 billion."
"We are about serving our members," he continued. "It is important for people to realize corporates are credit unions themselves. We have the mission of serving our members the best we can and give them the best rates we can offer. If you are running an investment portfolio, you want to get the best rate you can. Again, we worry less about being shopped against other corporates than being shopped against agencies.
"The competitiveness that does exist is good for our members, because it keeps us all on our toes," Hayes declared. "I don't think there is any chance of a 'hostile takeover' because there are so few of us now and we all know each other. The corporate network is a close-knit network. We work with U.S. Central and with each other to create efficiencies."
According to Fox, Southwest Corporate prices its share certificates approximately 15 to 20 basis points higher than comparable agency certificates. "Credit unions' margins are getting tighter, and credit union managers are looking for the best investment they can get at this time. That might be leading to this extra competitiveness.
"The corporates do compete, because more and more credit unions have multiple corporate relationships than in the past," Fox assessed. "Years ago, it was not common for a credit union to have multiple memberships or multiple relationships with corporates. Today, they are looking for the best rate among the corporates, and they might belong to three or four or even five."
The Economies of Scale
Asked what effect the recent consolidation and mergers among corporates has had on relations between natural-person CUs and corporates, or between the corporates themselves, Members United's Koza said overall it has been "very positive."
"Just as natural-person credit unions have seen the benefit of economies of scale through mergers, corporates are able to more effectively deliver products and services than smaller credit unions," he said. "As this process started a while back, there was an issue, but most corporates now have national fields of membership and can accept members from anywhere in the country. It is just like natural-person credit unions cooperating. I think the same cooperative nature is still evident in the corporate network. There is a realization there are some products and services we can do cumulatively than we could do individually. U.S. Central is a great example-they give us great products and services, which we pass on to our members."
Corporate One's Post said consolidation is one factor that has led to natural-person CUs to using more than one corporate. He said credit unions have diversified because it is more prudent for them to have more than one relationship.
"We've seen some money come out of other sectors, such as bank CDs or government securities, and have come into the corporate network," Post told Credit Union Journal. "Especially the large, natural-person credit unions, most of them have relationships with the top five corporates. With us growing, and having pierced $4 billion in assets and reaching the top four in corporates, we are more attractive to larger, natural-person credit unions. That has given us an opportunity to expand our relationships across the country."
Future FOM: No Boundaries?
Fox said with most corporates having national FOMs, and with the ability to serve credit unions all over the country, Southwest Corporate assumes many of its natural-person CU members get multiple bids or offerings before making a purchase. "I still feel a great sense of cooperation among the corporates, I have not seen that change at all."
Corporate One's Hixon said the old mindsets mostly have disappeared as corporates come to grips with the realization the days of what were essentially U.S. state boundaries are not coming back.
"The larger corporates tend to not worry as much about geographic areas, though some are territorial. There are corporates out there that still feel territorial, but there are some that are not at all. I'm used to the way things are. What I find interesting now is the attitude that what is good for our members is good for our members. We advertise, we go to trade shows with investment reps, we use e-mail very proactively. We get credit unions to sign up for our rate sheet, which we send to them every day."
Added Post, "It is not going to go away-it will be a competitive environment from here on out."
