Get Ready To Be Nostalgic For 1st Half of 2011

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LOMBARD, Ill.-Unfortunately, now may be the best credit unions feel about the economy in 2011, according to one analyst who predicts things will take a turn for the worse in second half of the year.

That outlook, shared by Bill Handel, VP of research and development for Raddon Financial Group, comes with a recommendation that credit unions need to promote-for an extended period of time-the role of the trusted financial advisor, placing that role above promoting products or services to members.

"Hopefully things will be better than my dire prediction, but you have to be realistic about the situation," stated Handel. "Credit unions need to hunker down with their membership, help them to weather the storm, and as a result pick up more of their share of wallet when members can afford to bring them more business. That has to be the mantra of the industry right now."

Analysts' guarded economic forecasts and predictions for credit union growth at the start of the year (Credit Union Journal, Dec. 28, 2010) were likely rosy, suggested Handel. "We were probably a little optimistic. There are too may threats both domestically and internationally for a U.S. economy that is very tenuous. We were at 1.8% GDP growth in Q1 and I anticipate we will be less than that in the second half. We may even see an increase in the unemployment rate."

Besides predicting a 10% correction in the stock market in 2011, and noting that the country is on pace to have a record low on housing starts, Handel-like many other economists-cited the heart of the economic problems as being consumers' balance sheets. "Our consumer and real estate debt as a percentage of our income in this country is close to 100%, and that is really high by all standards. So with the notion that consumers are trying to fix their balance sheets, you won't have any strong consumer stimulus to move the economy this year."

Given the situation, Handel suggested credit union loan and deposit strategies: "Avoid the urge to put a lot of fixed-rate long-term loans on the books because interest rates may go up. It is tempting to write 30- and 15-year mortgages to get a better-yielding asset. But that could come back to bite you severely."

Handel, as a number of analysts have recommended in the last year, suggested focusing on loan recapture programs. "Measure the share of wallet you have with your members, and set some benchmarks and goals as far as increasing those numbers."

Credit unions, too, need to put in place a deposit management strategy, advised Handel. "June is when QE2 effectively ends, and it is very possible rates may rise. When we do see rates begin to rise, who knows how quickly or whether it will be in short-term, long-term rates, or both. But the fact is that rates will begin to creep up so you will have to have a deposit management strategy that will help you hold onto your deposits but also control your costs of funds in a rising-rate environment. Cost of funds will be really critical in 2011."

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