What Does It All Mean To Your Credit Union? Funds Flow In As Investors Flee The Stock Market
As much as $85 billion in new savings are expected to flood into the credit union movement this year as investors flee the plunging stock market for safe havens.
"People are nervous about what's going on in the stock market," noted John Ward, a director at Atlantic FCU, Newtown Square, Penn. "For the most part, it's a good thing for us."
But the massive flow of new credit union shares is causing a quandary for managers and boards alike as they seek ways to invest the new funds without tying them up long-term, lest they flow right out again sometime soon.
Managers and directors interviewed by The Credit Union Journal reported a 20% surge in new shares for the first half of the year, with no end in sight.
"I believe you'll see the same kind of growth in the second half," said William Fox, a director at USA FCU.
Officials at NAFCU's annual convention said new mortgage lending, most of it refinancings, has taken up a large chunk of the new money; while others are sharing their new-found liquidity through loan participations. Some are reporting a strong market for car loans, most of it for used cars. Still others are using the funds to finance capital projects, like new branches.
Brisk Business In Car Loans
Fox, chairman of the board at USA FCU, said the San Diego credit union is continuing to do a brisk business in car loans, especially used cars, as rates remain low. The credit union's participation in two area indirect loans programs, MAC and CU Direct Lending, has helped boost car lending, even in the face of 0% financing by auto lenders. "The best investment is a loan-that's what we're doing," said Fox of his 91% loaned-out credit union.
Still, the credit union is maintaining a large portion of the new shares in short-term accounts, most of it at WesCorp FCU, just in case the funds start flowing out again should the stock market pick up.
Lafayette FCU, too, is keeping those new-found surplus funds short because of the economy's uncertainty, according to Bill Brooks, president of the Kensington, Md., credit union. "We still have a lot of overnights. We know this market's going to change on a dime," he said. "We know some of this money is fool's gold."
Julie Prosek, vice president at Embarcadero FCU, San Francisco, said her credit union grew around 15% in the first half, bringing in a surfeit of millions of dollars in extra shares. The credit union is sharing some of the additional liquidity with other credit unions by investing in mortgage loan participations with the Paragon Financial Group, a CUSO of Paragon FCU in New Jersey.
A similar strategy is being pursued by Travis FCU, which is participating in member business loan (MBL) deals offered by Telesis CU and Evangelical Christian CU, according to James Porter, chairman of the Vacaville, Calif., credit union's board of directors. "They give us a nice return and they're very safe."
But Travis and others are having difficulty finding credible investments for their new surplus funds. "I don't think the returns are so good out there. It's really driven down the rates," said Porter. "I'd like to see us get a better return so our members can get a little better return on their money."
Several credit unions said the new funds will help them accelerate expansion plans. "We're investing in better services; we've opened three new branches in the first half," said Sidney Gambrell, a director at Savannah River Plant FCU, whose Augusta, Ga., credit union saw 13% growth in the first half of the year.
Roger Youngs, president of Finance Center FCU, which recently converted to a community charter encompassing Marion County (Indianapolis), Ind., said they have plans for two new branches and will embark on a new branding campaign to reflect their new market. Youngs said despite strong share growth in the first half, lending continues to be strong, leaving few surplus funds. "We haven't made a new investment in 19 months," he said.
Money Flows Into Corporates
Much of the new credit union funds are being deposited in the corporates, which have seen tremendous volatility over the past two years with the ebb and flow of the stock market. The network of 34 retail corporates has seen its assets swell by as much as $10 billion since the first of the year as natural person credit unions wallow in new savings, according to NCUA. Assets in the corporate system appeared to peak at a new high of $105 billion at the end of the first quarter, according to Kent Buckham, director of NCUA's office of corporate credit unions.
It's not unusual for U.S. Central CU, the corporates' own corporate and which mushroomed to almost $38 billion in assets earlier this year, to see $5 billion change in assets in a day, said Buckham.