Rethink Non-Interest Income In The 2nd Half

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BROOKFIELD, Wis.-With the Durbin Amendment hanging over CUs like the "Sword of Damocles," Mark Sievewright says it's time credit unions reinvent how they generate non-interest income.

The president Credit Union Solutions at Fiserv made that suggestion as he surveyed the CU landscape for the rest of 2011, adding that those changes are necessary even if Durbin is delayed or undone by new legislation. "It seems to me that hanging onto interchange revenue is like holding water or sand in your hands. Sooner or later it will slip through your fingers. The regulators seem to be obsessed about the non-interest income streams of banks and credit unions."

If Durbin does not happen and CUs reinvent non-interest revenue streams, Sievewright believes credit unions will be "well positioned to thrive" in the coming years. For the remainder of 2011, if Durbin fails, Sievewright told Credit Union Journal he sees a moderate improvement in CU performance-50 to 60 basis points ROA-driven by underlying improvements in net income due in part to declining loan losses, a slightly better margin coming off moderate loan growth, and premium and stabilization costs lower than expected.

If the Durbin rules go through as written, and credit unions are unable to reinvent revenue streams, Sievewright said ROA will fall below his forecast and credit unions will also "have to question how can they keep pace and remain relevant." Sievewright believes if Durbin is enacted as written, credit unions-which are already extremely focused on managing costs-will look even more closely at controlling operating expenses and leaning on technology to help in that area.

According to Sievewright, the economy for the remainder of the year will gradually become less of a hindrance to CUs. "I often describe the U.S. economy as a slow cooker, because we are in the process of a slow and fairly fragile economic recovery. For the next 12 to 18 months we will continue with the low-rate environment."

Biggest Obstacle: Jobs

Jobs are the biggest obstacle to recovery, observed Sievewright. "We will see some meaningful job improvement. But to get a 1% improvement in the unemployment rate you need to create over one million net new jobs. I am anticipating that unemployment will start to edge closer to 8.5% to 8.25% at the time of the next presidential election."

The positive signs in the economy are being seen by Fiserv via credit union technology decisions, shared Sievewright. "Credit unions are in a great spot from a capital perspective. We are starting to see credit unions' appetite for technology spending improve, but it's not a waterfall yet. We are seeing a willingness from clients to buy more solutions from a single vendor because they want the benefits of integration, pricing, and simplicity."

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