Here's An 'Evolutionary' Idea: Remain A CU

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In the June 30 edition of Credit Union Journal, Peter Duffy wrote an article titled, "Evolving Credit Unions Demand What Congress Intended: Option to Change Charters." This article could have been written by any of the leaders of the thrift charter conversion movement that has now almost come to a screeching halt because of the perils inherent in the process and the realization that the grass isn't necessarily as green as it might seem on the bank/thrift side of the fence.

Mr. Duffy seems to be an expert banking services consultant. In fact, my guess is that he is very proficient at consulting on bank success metrics (i.e., ROA, increasing market share, etc.) While these considerations are important to many credit unions, they certainly don't represent the strong core underpinnings of the "not-for-profit" credit union movement.

In his article, Mr. Duffy repeats much of the rhetoric of the Coalition for Credit Union Charter Choice and consultants such as Alan Therriault who have worked so hard to assist large credit unions in their attempts to convert to a federal thrift charter. These proponents of thrift charter conversions seem to prey on the CU industry's challenges with getting CURIA passed, suggesting that the better option is a bank or thrift charter. His article asks us to consider the irony that "charter choice has become all but extinct in the credit union movement, and then along comes the Treasury's proposed Blueprint to consolidate banks and CUs with its requirement for national banks and federally chartered thrifts and CUs. He then attempts to persuade the credit union community that four alternative courses exist for "evolving" or progressive credit unions. They include: 1) Lobby harder for CURIA; 2) Merge with another credit union; 3) Convert to an MSB charter and 4) Hope the Treasury proposal doesn't get bogged down.

Every one of these supposed options puts this cynical and misguided pro-conversion, pro-bank rhetoric forward while ignoring the best option of all, the one selected by 100% of all credit unions in the past year: Stay a credit union and execute well in the marketplace. This is clearly the best option available to credit unions. Who wants to be a bank or thrift these days? Shouldn't the so-called expert consultants be talking about the best options rather than the ones that they themselves benefit from? Hasn't Mr. Duffy's firm consistently been a proponent of thrift charter conversions over the past 10 years, while doing so under the auspices of "expert, outside-the-box consulting?"

Stepping back from Mr. Duffy's motives, one has to wonder about the true irony here. It truly is ironic that anyone would try to make a credible claim about the merits of the bank/thrift charters relative to credit unions. The bank charter is better for shareholders and the credit union charter is better for members/consumers. Credit union leaders are smart about the best options available to them. Staying a credit union in today's climate just makes good business sense and definitely provides greater value to the member-owners.

But back to the true irony. Consider the major news headlines in the aftermath of the collapse of IndyMac Bancorp, a large California lender that caused the S&P bank-stock index to fall 10% the day following the news and is now down nearly two-thirds over the past year. Some of the nation's largest banks and thrifts have suffered severe declines, including Washington Mutual, Zions Bancorp, KeyCorp and U.S. Bancorp. Zions Bancorp, the bank whose CEO, Harris Simmons, has led the attack on the credit union industry, has seen stock prices fall to $20 per share vs. a price of $80 one year ago.

Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported net income of $19.3 billion in the first quarter of 2008, a decline of $16.3 billion (45.7%) from the $35.6 billion that the industry earned in the first quarter of 2007.

What is it about the bank/thrift charter that is so appealing to credit unions these days? Or could it be that contrary to Mr. Duffy's assertions, the credit union charter is looking pretty darn good right now?

Perhaps this is a good time to take pause and appreciate why the credit union charter always weathers the storms more effectively than the for-profit sectors. How many times do we have to witness cycles like the s&l debacle, the banking industry stress that led to the FDIC Improvements Act, or the current economic cycle, all of which demonstrate that excessive and unregulated risk-taking by banks leads to their own woes?

In Michigan and in many states, there are numerous options available to credit unions to help them "evolve" to meet their members' needs and the needs of the communities they serve. These include the option of switching to a state charter and/or working with their state and national trade associations to continue to lobby lawmakers and regulators for the reforms necessary to compete.

If credit union boards think profit and market share are what matter most, they should do as Mr. Duffy advises and work to lobby to make it easier to convert to a bank or thrift. They should then get busy about making the case to their members about why profit, market share, increased commercial lending powers and the ability to raise capital by selling stock are more important to the member-owners than value and service.

Nobody can provide better value and service on consumer financial services than a well-run credit union. The American Banker's annual survey has demonstrated that for the past 20 years. Are the depositors and investors of these large troubled banks and thrifts getting good value right now as a result of yet another cycle of excess risk-taking by these institutions? What about taxpayers who face the potential of another large taxpayer bailout of the GSEs and bank deposit insurance fund if things get further out of control? Or more realistically, what about the customers of these banks who will now need to be turned away as the banks/thrifts shrink their balance sheets (restricting access to credit) in order to meet capital requirements? Where will they turn? Hopefully to CUs and other responsible, trusted lenders.

Mr. Duffy seems to conveniently ignore the best alternative of all for "evolving" progressive credit unions. That is, especially in the current climate, recommit to everything that differentiates credit unions from banks/thrifts and be the best credit union, the most service-oriented, value-driven financial institution you can possibly be in your current market. Growth and financial success will follow if the credit union is well run.

Two of Michigan's best credit unions by all success metrics are DFCU Financial and Lake Michigan Credit Union, both "evolving" credit unions that have recommitted to the credit union charter and are finding lots of success by executing and exploiting the advantages of the credit union charter. Good CEOs and boards know how to work with what they have to make the grass greener on this side of the fence.

David Adams is CEO of the Michigan Credit Union League. (c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved.

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