Key Challenge Facing All Corporates:How Are They Going To Make Money?
AUSTIN, Texas — Kerry Parker is clear about the key issue facing corporate CUs over the next few years — generating revenue.
"Looking at that sustainable future, it's going to be tough," said the chair of the advisory council for Catalyst Corporate FCU, the new entity being formed by the merger of Southwest Bridge Corporate and Georgia Corporate FCU. "A lot of this is about scale, how do you make money? I believe about half of the corporates will be around in the coming years, and if I had to roll the dice, I'd say that number would be realized in the next five years. It is just kind of the evolution of what has to be."
Parker, who is also CEO of the $850-million A+ FCU here, acknowledged that with the new NCUA regulations limiting corporate investments and therefore reducing income to offset lower item processing charges, corporates will simply have to "make money on the fee side to exist. That is where the competitive issues come about. That is why it is critical to have the most efficient systems, look at whether partnership with someone else makes sense, or come to the realization that you just can't make it anymore."
Parker is confident the merger of Southwest Bridge Corporate and Georgia Corporate will provide the needed scale and efficiencies to make Catalyst profitable. Parker told Credit Union Journal she believes a number of corporates are currently sitting on the sidelines to see what will happen with some of the large corporates before shaping their own roles and futures, whether that be becoming a one-stop-shop, limiting services, or merging.
Capital Drive Underway
The course has been set for Catalyst, which at press time was working toward a capital call of $125 to $130 million, Parker said. On June 30, the date Catalyst's capital request closedre, Parker said Catalyst had received commitment from 700 credit unions but added that she had no knowledge of how much capital had been committed. Catalyst is another corporate that is shrinking its balance sheet, dropping the combined balance sheets from Southwest and Georgia down to $3 billion. If the capital request goes as expected, Parker believes the new entity will be charted August 1.
"When we went out to our memberships to ask them for their input, the one thing that was loud and clear is the members did not want to put up as much capital as they had in the past," Parker noted. "Small credit unions wanted a more prorated share contribution."
One reason Parker is confident that Catalyst will be charted in less than a month is because the attitudes of natural-person CUs toward the corporate system have improved a great deal since 2008.
"I think the two years have given people the perspective as to what happened to other organizations-other financial institutions and large brokerage houses. There are a lot of folks still upset, but the number has come down quite a bit," said Parker. "They realize it's time to put anger aside and figure out what is best for their membership. Credit unions are going through that process and doing serious due diligence to see what the costs will be if they use someone other than their corporate."