Over the last 12 months, many credit unions’ asset and membership growth were flat. And at most of these credit unions there were increased charge-offs attributable to the declining economy.
Even with many economists’ predictions of continued tough times ahead in 2008, credit unions can still effectively position themselves to make measurable progress. If a credit union is already on a prudent strategic path with good operational numbers, it’s an excellent time to take a look at the changing environment and adjust tactics.
Each credit union must find its own path through the troubled waters predicted for 2008. What will work for a $100-million credit union may differ greatly from what works for a billion-dollar institution. Regardless of size, credit unions should hope for the best, but plan for the worst.
Those credit unions that expect to succeed will spend 2008 searching for creative solutions to perplexing problems. Surviving 2008 intact and vigorous will require that credit unions make frequent adjustments to their short-term roadmap while focusing their strategic thinking farther down the road.
Economy’s Influence Compelling
The economy will be the credit union industry’s most compelling strategic influence during 2008. When describing the next 12 months, the terms “mortgage meltdown,” “recession,” “geopolitical turmoil,” and “stagflation” are popping up disturbingly often in the business press.
It has become extremely difficult to find an economist with a rosy prediction for the coming year.
All CUs’ loan and investment portfolios are sure to receive a “stress test” or “shock test” in 2008 with the predicted worsening of the economy and the expectation that the mortgage mess won’t go away until 2009, if then. With their confidence on a rapid downslide, consumers are also expected to pull back with spending and borrowing. Credit union members’ deteriorating household budgets could cause even more trouble ahead for an economy already sputtering into 2008.
The extent of the negative economic impact will vary from one region of the country to another. However, everyone will feel the pinch to some degree.
Rather than cower in fear in the corner, credit union leaders need to identify what they can do to assist their consumer members through the tough times, yet still turn in respectable statements of financial condition to their regulators.
2008 will be a very unpredictable political year that is certain to see an increase in the “crazy factor” in Congress. Since Congress has already been on a multi-year streak of gridlock, its hard to imagine lawmakers being even less productive, but plan on it.
Credit unions should expect no legislative help in 2008, and that includes the much-coveted “regulatory relief.” If anything, congressional election pandering and so-called populist “cures” for the mortgage meltdown will flagrantly undermine free enterprise and the capital markets. That will only make the economy worse.
Stepped-Up BSA Enforcement
One thing that credit unions can rely on in 2008 is that their regulatory compliance costs will increase. Under pressure themselves from anti-terrorism edicts, regulators will force credit unions to get serious about bank secrecy and anti-money laundering compliance. Credit unions lag well behind the other financial institutions in fully complying with these critical statutory and regulatory requirements.
Penalties for regulatory non-compliance can be severe, including the removal of management and the board of directors. Past years’ regulatory forbearance will become a distant memory in 2008. Credit union leaders who ignore this stepped-up, no-excuses-accepted compliance expectation will regret it.
Merge to Grow?
Growth of all types will be difficult for credit unions to come by in 2008. With organic growth occurring at a snail’s pace (and even going negative), many credit unions will look to mergers as a way to increase members and assets. Unrealistically, most credit unions insist on being the “surviving credit union” in a merger. That strategy only works when there are an equal number of credit unions that want to be the “merging credit union.” Take it from me, there aren’t.
Due to the growing economic pressures and the margin compression that encourages risk-taking, 2008 will also see an increase in regulator-driven mergers of troubled institutions. Hopefully, the number of basket cases that the regulators take over and sell off will be less than predicted, but the worst-case scenario remains disturbing. Despite the complexities of purchasing the assets of a distressed credit union, it can be a smart strategic move if executed with proper due diligence and with one’s eyes wide open.
Any credit union that seriously expects to pull off a “friendly” merger in 2008 will need to place a compelling reason to merge in front of potential partner credit unions. That means a deal that accommodates the merging credit union’s executives, board of directors, employees, the members, and oh yes, those pesky regulators, too. For a merger deal to close, all parties must share a compelling vision for the combined organization.
The average age of a credit union member is nearing 50 and the board of directors is usually older than that. In order to thrive during 2008, credit unions must find new ways to serve their aging members and concurrently attract those younger Americans that represent the credit union’s long-term future. Credit unions will need to base their marketing tactics on serious research and not just on the gut feelings of their aging boards of directors.
User-friendly retail-level technology and convenience-oriented service delivery systems hold the most promise as magnets to attract younger members. In 2008, credit unions should experiment and innovate with technology add-ons that will generate buzz, cut operating costs, or introduce new revenue. Every credit union can get its technology vendors directly involved in finding new and affordable ways to serve the younger membership.
Lessons for Bad Times
Although he was talking about the newspaper business in his weekly column, The Seattle Times editor at large Michael R. Francher has advice about weathering difficult times that the credit union industry can also take to heart: “In my experience, the lessons in bad times have been consistent:
* Stay focused on the resources available to you.
* Apply them to the opportunities and priorities most central to your core values.
* Leverage them with innovation and ingenuity.
* Concentrate on what you can affect, not what somebody else is or isn’t doing.
* Keep moving forward, knowing that adversity always triggers unexpected possibilities.”
Francher concluded, “I don’t need to say anything about getting out of your comfort zone; that is a given in times like these. You can’t control the external forces working on you, but you can be the most powerful force working on you. Do it now.”
Marvin Umholtz is CEO of Umholtz Strategic Planning & Consulting Services. He can be reached at marvin.umholtz
