BIRMINGHAM, Ala. — What does Q3 and Q4 hold? Apparently, more mergers.
Former NCUA Chair Dennis Dollar, who now heads his own firm, Dollar Associates, told Credit Union Journal that inquiries for merger consultation have "quadrupled. The losses and the impact on earnings the corporate stabilization funds have brought have generated merger discussions that were not there previously, even among larger credit unions. There are those of us who believe that this merger trend we have been on for the last five years - where we average a CU merger per business day - is only going to accelerate as result of the corporate losses."
No surprise, Dollar added, that costs related to the corporate bailout and existing tight margins are also increasing regulator scrutiny and corresponding requests for regulatory consulting. "That side of our business is growing tremendously and will continue into the second half of the year," predicted Dollar. "Many credit unions are facing examination issues that they never faced before, having to write net worth restoration plans for the first time, and responding to findings about their capital or their earnings. Many times the credit union just wants another set of eyes to look over their work."
Through the first half of the year Dollar Associates has also seen growing demand for strategic planning consulting, and Dollar expects that to continue. "Based upon the strategic planning sessions we have conducted this year, I speculate that credit unions are now coming to grips with the impact of the corporate stabilization. They are saying, 'I don't like it and I wish it hadn't happened. But now I have to start planning for 2010 and beyond.' So many credit unions are starting over on their strategic planning because their '08 and '09 plans have been pushed back due to the corporate stabilization costs."
Dollar believes the economy will not fully recover until 2011, when the "new normalcy" begins. "And by new normalcy I mean that credit unions will be at normal ROA levels, but those levels will be less than they were in past," Dollar explained. "What used to be 1% ROA expectation in a good year now will be 60 to 70 basis points. It's just a new reality that will arrive due to tight margins and the cost of the corporate stabilization fund spread out over seven years — and from increased regulatory expenses that are going to occur as Congress and regulators vow to never let this economic situation happen again and tend to over-regulate to the last crisis."
