When That Safe Bet Doesn't Turn Out to Be So Safe
If I had told you three or four years ago that in September of 2010 NCUA would be making a major announcement related to corporate credit unions, you would have told me "Stop right there, I already know what it will be, sure as John McCain has the presidency in 2008 all locked up."
And on what would you have comfortably dropped a Benjamin or two? That NCUA would be signing off on a super-regional corporate plan, and any CU could pick-and-choose products and services from any of the half-dozen remaining corporates.
That's the way it was all going to play out, wasn't it? Just five years ago the unstoppable force of conventional wisdom had joined with the immoveable object of assumptions to create some corporates that were big and getting bigger, driven by geographic advantages first and foremost, that were then leveraged by aggressive boards and more aggressive "visionary" CEOs who saw what was going on among natural-person CUs when it came to fields of membership and added a dose of steroids.
WesCorp was to dominate the West (and would try to merge its way into Tennessee). Southwest Corporate would own Texas, Oklahoma and other pick-up truck states (and would try to merge with Northwest Corporate, creating an only-in-credit-unions Southwest/Northwest CU). Southeast Corporate would extend its sunshine tentacles across the South. In the Midwest, a beachhead for Corporate One — surrounded by the created-by-merger Members United in Illinois and New York.
What of everyone else? The assumption was pretty well accepted: it was eat or be eaten. Those small, single-state operations were supposed to be soooo yesterday by the end of the century's first decade.
And then came Sept. 24, 2010. High-flying WesCorp and giant U.S. Central were already grounded in the government hanger. And now the wings of two more giants, Southwest and Members United, were being clipped. They would be joined by one of those smaller corporates that were supposed to be merger bait and which would in fact end up as just that, thanks to pursuing some investment strategies similar to the big boys. Soon Constitution Corporate will go the way of the Articles of Confederation.
I was asked last week what the lessons are from all this corporate meltdown. It was hard to avoid all the time-honored clichés: No such thing as a free lunch; if it sounds to good to be true, it probably is; do your due-diligence or end up paying your dues. OK, that last one is mine. But it's hard not to remember the days when a newspaper editor's inbound e-mail box was filled with competing press releases bragging about rates of return being offered by corporates and how quickly investment subscriptions had sold out. Haven't received one of those in a while.
During NCUA's Town Hall announcing its new corporate plan and the conservatorship of the three more corporates, NCUA Chairman Debbie Matz said the future of corporates is completely up to credit unions. What may have some people so angry — and Credit Union Journal has seldom seen an issue provoke Letters to the Editor like this corporate mess has — is that that has always been the case. It's good news when you can be handed a photo identifying a guiltt party. It's bad news when the photo is a mirror.
Now, be careful about where you're placing your bets today.
• There have been numerous surveys in recent months showing CUs outperform banks when it comes to consumer sentiment. The most recent, from Mintel Comperemedia, found that 36% of big bank customers trust their bank, compared to 57% of CU members. But here's an interesting additional stat to take into your next planning meeting: roughly 60% of respondents said trust in a brand is more important than price.
• Visit Australia and the first thing many people from the Northern Hemisphere will do is flush a toilet, sorry, loo, to see if the water really does go down in the opposite direction. So that must explain this reverse twist. Down Under, it's credit unions asking the government for a, wait for it, "level playing field." In this case, Credit Union Australia wants to "increase competition in the banking sector by changing the way mutuals are regulated," according to one news report. "We think there should be a level playing field," said Credit Union Australia CEO Chris Whitehead. "We are keen to lobby the government and replace authorized deposit-taking institution with authorized banking institution."
According to the CU, the new term would allow credit unions to highlight that they are regulated just as banks are, and dispel consumer concerns that mutual institutions aren't as safe as banks.
It was a representative of Credit Union Australia, as the name seems to make clear, who told the World Council's World CU Conference last year in Barcelona, Spain that the CU's goal is to eventually control 25% of all CU assets in the country.
• Not everything about the playing field in Australia is opposite that of the U.S. The country's regulator has ordered CUs and mutuals to change the language in a recent ad that claims consumers can save $35,000 by switching from a big bank to a credit union. The regulator, in response to complaints from banks, says the figure should be $30,000. That's right: the banks wanted to make clear that a consumer would only save thirty-grand over a lifetime by being a member vs. a customer.
Frank J. Diekmann is publisher of Credit Union Journal and can be reached at email@example.com.