NEW ORLEANS – Despite massive assistance by government and private sector organizations, Hurricane Katrina and its aftermath devastated credit unions in and around New Orleans, especially low-income credit unions, according to a study released Friday by the Filene Research Institute.
In the months following the massive August 2005 storm, which damaged 63 credit unions in New Orleans and Mississippi, 16 credit union (15 in New Orleans and one in Mississippi) went out of business, while surviving institutions saw a major drop-off in business as hundreds of thousands of their members fled the area, translating into a 10% decline in potential members, according to the study by the credit union think tank.
As a result, the number of credit union members between May 31, 2005 and May 31, 2006, the period under study, declined almost 4% in New Orleans, to 170,000.
The huge hurricane wiped out virtually all profits for New Orleans credit unions, which averaged just 0.08% return-on-average assets for the period. The storm was even more devastating for low-income credit unions, with their ROA going from an average of 1.09% to negative 0.70%, the Filene study found.
Prospects have continued to decline since the end of the study period, with another 10 New Orleans credit unions being either merged or liquidated, according to NCUA data.
"Credit unions and banks suffered enormous losses through physical damage, the loss of surrounding businesses, and employee personal losses following Katrina," concluded the study, "Cooperative Comebacks: Resilience in the Face of the Hurricane Katrina Catastrophe." "Because credit unions based in the sample area were greater in number and tended to cater to lower-income groups, they suffered more closures, movements out of the area, and mergers. These losses were almost entirely in the New Orleans area."
"Banks gained employees in the year following Katrina, while credit unions lost about 4% of their workforce."
The affect on the Mississippi Gulf credit unions was not as profound, with just one credit union merger to May 2005, and that was already in the works prior to Katrina, and two more mergers since then. In fact, members in Mississippi credit unions actually grew during the study period, mainly because of refugees fleeing from New Orleans, a migration that boosted potential members in the state by almost 12%.
Assets swelled by almost 28% for credit unions in both New Orleans and the affected areas of Mississippi during the aftermath, largely because of the collection of insurance funds and public aid that was deposited in credit unions and banks.
The study was conducted by Mark Klinedinst, a professor of economics at the University of Southern Mississippi.
