1st Thoughts on Everything Credit Union

Question for Debbie Matz

2012-02-07T16:14:00.000-08:00

As reported in CU Journal on February 1,2012 it is the position of NCUA as put forth by David Marquis that NCUA examiner findings are based upon individual judgment and no further regulation or “standards” need to be instituted.

During the town hall meetings surrounding the failure of WesCorp, we were told that the agency was powerless to stop what they were doing. You stated that the agency had no jurisdictional reason to curtail WesCorp’s investing practices.

How do you reconcile these two statements? Either NCUA had all the power they needed and failed, or they were powerless because there were no standards.

Yet you argue for no standards.

Please comment.

Big Surprise! No standards are being applied to your NCUA review!

2012-02-01T13:23:00.000-08:00

According to a recent post in the CU Journal: "Marquis noted that examiners’ finding are currently based on individual judgment and sound industry practice and the proposals in the bill would require NCUA and the bank regulators to develop standard measurements and other regulations to provide examiners with sufficient support for their judgments."

In Regulator-talk... that means "We call what's right or wrong, based upon how we see things... and our 20-something year old's with 2 whole weeks of training are eminently qualified to render an opinion as to what's right or wrong." "Standards? We don't need no stinking standards!... why that would have prevented WesCorp, US Central, Wescom, Arrowhead... and a whole host of other notable cu failures while we were ~~busy cashing our paychecks~~ watching over their operations." "Why, good grief, if there were standards, cu's could tell us to go pound sand when we give them our sage advise." "Why the whole concept is unthinkable"... "We are large and in charge, until we appear in court; then we are a small agency represented by an incapable attorney who can't win a case no matter how much of a slam dunk it is!"

What they REALLY are saying is - We don't want to be held accountable! Good for CU*Answers and their putting forth the petition about CU Rights.

And they wonder why we shake our heads at NCUA?

Risky Business – Sales culture in credit unions

2012-02-01T07:46:00.000-08:00

Running an efficient and profitable credit union is likened to running a marathon: It’s a long haul and your strategy needs to change with the changes in the course. Some folks have lost sight of the course change. Question – “Do you think that the go-go-go of the sales culture caused in some larger part, the debacle of 2007?” Which begs the next question – “Can the practice that caused the problem be used to solve the same problem?” America over-binged. Most folks have seen the light of that and have taken steps to correct their wild spending. And, at these rates, the best return on investment is to reduce debt. Better to pay off a 8% (or higher) loan than to leave the same monies sitting in an account only paying 25 basis points. So, now the clash. Credit unions are to serve the best needs of their members. What happens when the best needs of the members cause the CEO to lose out on a bonus, because the “numbers” weren’t met for his/her payout? Unfortunately, as we’ve seen our ranks infiltrated by bankers, the most common answer is to “full steam ahead” “give me my bonus”. Shame on these people! Go back to your bank and get the public payout and the just deserved wrath of consumers everywhere. Being a credit union used to mean something. It’s time we held folks responsible for their bank-like actions. Luckily, it’s not necessary to actually have to call these folks. NCUA is at their doorsteps as we speak; asking for a Net Worth Restoration plan or presenting a letter explaining how XYZ cu will now be running what used to be your shop.

WesCorp Settlement up-coming? NCUA is now going to SETTLE? You best BE THERE!

2012-01-24T15:03:00.000-08:00

Really? Settle? As in, nickles on the dollar settle? Gee, can I "settle" with NCUA on the assessments they will be charging me going forward? If your cu lost big bucks and you were not on the WesCorp board or supervisory committee (lot of good they did!) at the time they were conserved.... you should attend the meeting to see how cheaply the defendants will get off with YOUR MEMBERS MONEY! Maybe with a few dozen victims in the room, NCUA will be a little less willing to take chump change in exchange for what the defendants did to your members. You need to appear and tell the court how the actions of the defendants impacted your operations.

What an unbelievable record of chuck-ups!

Asleep at the switch at WesCorp...

Slow to sue (thanks 7 cu's for holding NCUA's feet to the fire --- See any other suits going on out there? You know they wanted to sweep this under the carpet as well and keep their incompetence hidden-- even if it wasn't),

missed deadlines with Wall Street legal claims,

filed their required reports late,

received the ire of the GAO (So what? - "We agree...we suck!),

continues to employ Melinda Love at approx. $250K/year (now doing other duties --- apparently away from causing NCUA any other embarrassments or future losses),

let the old WesCorp board off the hook (showing its now officially ok to be stupid and be a board member because NCUA has shown they don't care how bad you act... they won't try and hold you liable),

Knee-jerk reaction to the industry by Over-regulating those that did not participate in the debacle. (What a complete inability to distinguish between those that caused the debacle and those that didn't. You all get the same treatment with NCUA),

and now they are going to settle. Any bets on who will be picking up the tab for NCUA's lack of "growing a pair"? (Sorry... I don't mean to offend... If that offended you, please unread the last statement).

CU Journal has since pulled the article this blog referenced. Here it is/was:

From CU Journal:

Court Sets Settlement Conference in NCUA’s WesCorp Suit

Credit Union Journal Daily Briefing | Tuesday, January 24, 2012

By Ed Roberts

LOS ANGELES – A federal court this afternoon scheduled a settlement conference on NCUA’s civil negligence suit against top executives of WesCorp FCU for Feb. 27.

Separately, CUNA Mutual disputed this afternoon’s Credit Union Journal report saying its CUMIS Insurance Society unit has liability of as much as $90 million in directors and officers insurance in the case, saying their liability is closer to $10 million.

Both sides are being asked to submit by Feb. 20 six copies of a summary of the factual background in the case, a summary of important legal issues, a description of the damages or other relief sought, a summary of settlement negotiations and plans for a trial, if the case goes that far.

Each and every party named in the suit were directed to appear in person at the conference, which could last all day, the court said.

NCUA is suing five top officers of WesCorp, including CEO Bob Siravo, CFO Todd Lane, Chief Investment Officer Bob Burrell, Chief Risk Officer Timothy Sidley and Human Resources Director Thomas Swedberg, claiming their negligence caused the failure of the one-time $34 billion corporate credit union. The court, the U.S. District Court for the Central District of California, dismissed similar negligence charges against 11 WesCorp directors in July.

Magistrate Judge Margaret Nagle, and not Judge George Wu, who dismissed the charges against the directors, will preside over the settlement conference.

You sure you want to win that award? Anonymous to NAFCU

2012-01-19T08:40:00.000-08:00

Hi Fred-

In light of the experiences of a recent NAFCU AWARD WINNER - I would like to recommend not only the prestigious NAFCU Plaque but also a $10,000 legal defense gift card. The gal in Florida could sure as heck take advantage of such a gift card. Thinking outside of the box maybe just a non-descript $10,000 gift card would be more appropriate. I am thinking with Tom Glatt unemployed and another recent NAFCU WINNER - he could probably use such a gift card - at least he does not need it for legal defenses.

I am just thinking with the recognition of these NAFCU Awards - it seems to bring bad luck, too. In the most unlikely event I am nominated I hereby decline to be inducted into the hall of shame. Give the recognition and shine the light on Bob Siravo or Bob Burrell.

On that note have a great rest of your day.

I think the same person sent a similar note to the President regarding the NCUA nomination from the CDCU while having their ATM outages in the high 6 figures.

TOOOOOOOOOOOOOO funny!!!!! Let's get those backgrounds (or at least look at their real estate transactions.... How many houses were walked away from, while the cu was holding the loan?) checked first and the awards presented later folks. There are some really damaged resume's out there.

Even though WesCorp is now officially dead.... you won't see too many references to time spent at that shop or on their board, any time soon on a resume. Talk about how not go get a job! "Hire me, I sunk WesCorp and cost your credit union umpteen $Million in assessments". Yep, that'll get you hired!

The teacher assigns an "F", and the student says "May I have another!".

2012-01-04T12:03:00.000-08:00

CU Times and Journal both are reporting the current debacle was caused, in some great part, by NCUA. NCUA's reaction to the GAO report ... "Yes Sir, your right... good job in seeing that. We are terrible at regulating!". You see, when you have an appointed job... there is no need to succeed. It's all about being "right" and "in charge". Well friends, if you thought the NCUA lion was awakening and causing cu's grief up to this point..... As the man said: "You ain't seen nothing yet!" NCUA just got their walking orders to take an unrestrained crunch on CUs actions. The are now free to solve 50 of the next 5 problems you have (that's 5 actual issues, and 45 perceived issues identified by NCUA).

And who are these "super-smart" doers of good that come to visit our offices? Why 20 year old's who "know everything"! Everything about credit granting, compliance, history,... well everything. Why, they've been through the 3 week intensive course led by other "seasoned" NCUA examiners... So, you know they have tons of experience to draw on when they make their "recommendations" on how to improve your shop. They are smarter than you and know more about cu's than you do. That's right! Any you know how they know this? Why, NCUA told them so!

Problem is, if you happen to be a smaller cu... those recommendations are to - MERGE. You see, if your only tool is a hammer, all your problems look like nails. Low on income - MERGE, seen higher than normal delinquency - MERGE. And NCUA is SOOOOOOOOOOOOOO much better at watching over the larger cu's, like WesCorp, right?

Forget risk Management.... we are now going to be in full-time hard core risk AVOIDANCE.... right up to and including the demise of your credit union. You thought it was tough to make a buck before? Try avoiding ALL risk and making even $0.01 ---- Well, after assessments.... "How much capital do you have? Send it!"

Our members deserve a better regulator than what they have been forced to endure!!!!

Unfortunately, it's only going to get worse! We are really going to let the folks who caused the problem be in charge of fixing the problem.... Congrats! We are living a punch-line!!!!!

Bankers are trying to "define" us again. Now they picked a really stupid area to hit on.

2011-11-29T12:09:00.000-08:00

Ok, Bankers - you asked for it. We (Credit Unions) are not subject to the Community Reinvestment Act, because we ACTUALLY do what the act tries to make banks do.... WHY? Because banks abandoned area that were unprofitable instead of trying to help people of modest income. The regulator is holding your feet to the fire to do what you were chartered to do. CU's on the other hand, have always done what the Act intends... THAT my capital-rich friends, is why we are not concerned about what the Director of Greenlining Institute thinks! Perhaps she should concentrate her thought process on why so frigging much money constantly needs to be poured into banks and the funds always end up go to just a few people for their personal enrichment. And you wonder why folks are taking to the streets??? Did they say what planet the institute is headquartered on?

Once again -- the Banks are unrepentant in their actions (or lack thereof) and they are trying to drive the discussion to make us the bad guy. The Nazis of old would be proud! The awkward TRUTH is we aren't subject to CRA... because we were found not wanting in this area.

We need more of our Trades holding court and putting the banks in their place. Where's CUNA, and NAFCU? Why aren't we trying to direct the fate of banks? Why aren't we bringing their faults and shortcomings to Congress? Why are we ALWAYS on the defense and the banks always on the offense? Where's the PUSH-BACK? I guess when our "leaders" make more money than most folks, they don't want to rock the boat... just cash the check and hope all continues as it ever was.

From the Editors of American Banker

BankThink: Transfer Day Assumed Credit Unions Are Virtuous

Did the consumers who took part in Bank Transfer Day “accomplish what the campaign's supporters wanted — to vote with their dollars for institutions with more concern and responsibility for their communities?” asks Preeti Vissa, the community reinvestment director of the Greenlining Institute.
Because credit unions aren’t subject to the Community Reinvestment Act, “the awkward truth is that we don't know nearly enough about the extent to which credit unions overall serve low- and moderate-income consumers,” she says.

CU's talking about MBL on the Hill. Again? Really? How'd it go for the last speaker?

2011-10-07T14:12:00.000-07:00

Grace Mayo presented information to the House Small Business Committee's Subcommittee on Tax, Finance and Exports proposing raising the cap on MBL on March 9, 2006. So, how's she fared since that time with her restricted limit?

6/2006 - Assets = $601.8 Million, Capital = 10.5%, DQ = 1.15%, Net C/O = 1.53%, ROA = 1.06%

6/2011 - Assets = $347.1 Million, Capital = 6.25%, DQ = 11.03%, Net C/O = 3.37%, ROA = <.21>

One shudders to think how much worse shape her credit union would be in today (assuming it wouldn't have been liquidated already) if the House Committee had actually listened to her "sage" advice.

Link - http://www.cuna.org/download/legaff_sba_7a.pdf

What I find amazing is that CUNA, NAFCU, et all, haven't changed the rhetoric one bit since 2006.

In our low rate enviroment, be careful not to "sell" your money too cheaply.

2011-09-26T16:55:00.000-07:00

"What does that mean?" You ask. Well, we have long said that we are in the business of buying and selling money. We buy from our members in the form of dividends. We sell in the form of either making loans or putting funds out in investments.

"Which is best and when?" Like everything in our business, it depends.

For the simplest break-even analysis look at your investment yield and you net loan loss ratio. In order for a loan to have a better return to the credit union, the loan rate must be greater than the investment yield available and the loan loss ratio. Say you earn 1.75% on investments and your loan loss ratio is 1.25%. You would have to grant loans at 3% or higher to have an improvement over what you could obtain by simply investing the funds in government agencies or other investment programs. I've seen credit union chasing auto loan rates too low when an investment would have been a better return. Let someone else take the hit on losses.... at these rates, you don't have to go far above normal losses to have absolutely NO return on loans.

See my back? Hop off!!! Only $2B $6B to go? Bring it on and be done with it!

2011-09-22T16:49:00.000-07:00

At 25BP per cu per $2Billion of assessment, we only have 1 to 3 assessments to go if we use 25BP as the "pay-down standard". My vote --- Let's get it over with... hit me with 25 BP for 3 years and let's call it a day. Why do I say this? Two reasons:

1. The sheep that leave the fold are not obligated to pay future assessments. Having an overhanging and ongoing exposure to lessening the "pain" now only increases the amount us remaining "sheep" will have to pay when the wolves move to another charter.

2. Sooner is better for all... the larger cu's have higher ROA's and can take the hit. They are well above 25BP ROA... That's nothing - Yawn! Smaller cu's have excess capital and the also can take the hit (since they don't seem to be doing anything with their capital anyway! If you have over 20% capital and you're haven't used it to increase member services / programs by now... I'm pretty sure you're not planning on doing that anytime soon!).

Besides, what better time? If you have excess capital... you're not earning anything on the funds and paying assessments going forward will be harder due to regulations and competition. Pay now ... while we still can afford it.

So, let's all pony up and put this behind us, so we can focus on the current issues... Dodd/Frank, Interchange, NCUA, NCUA, NCUA and, last but not least - NCUA, the real threat to cu's.

BTW on the now-computed worse case, that would bring my total DTD (see post below) to 17% of my 2007 YE capital. My members are not happy with the hit to "Their Capital", and neither am I.

New item added to Chart of Accounts - DTD

2011-09-21T07:05:00.000-07:00

It stands for "Debacle To Date".... it represents the total amount your credit union members have paid in lost Capital and NCUA assessments for the Corporate debacle since it exploded. It will be the topic of board and annual meetings for years to come.

But, No Thanks Chuck!. Not everyone is wacky about MBL!

2011-09-09T20:52:00.000-07:00

We've seen some really wacky CU lending already with MBL.... We've also seen NCUA's total and complete lack of supervision and oversight of cu activities.... corporate and NPCU. So it comes as no surprise that the New York Credit Union Association is so pumped up on MBL.... they won't be paying the price of clean up! It reminds me of the little guy pushing the group on to a fight... while remaining well out of harms way.

You're totally right --- It won't cost the federal government $1..... it will however, result in massive assessments to the members of credit unions under the current set up.

Have NCUA get their act together. Put some beefed up capital requirements in place (so the tab is smaller when it all goes south). Limit the MBL to real MBL and not speculation, require some "skin in the game" .... then I'll say Thanks Chuck. Right now..... NO THANKS Chuck...

We haven't finished paying for the last debacle.... why set us up for another when we still have all the assessments to go? Everyone said "no one saw it coming" with the corporate melt-down... I'm telling you now.... under the current regulations -- the next one is coming soon!

Look in the mail.... your reality check has arrived. 70% reject UR's business plan

2011-09-01T08:20:00.000-07:00

Wow... the deadline date has come and gone. After much to do... the proposed business plan was rejected by the vast majority of credit unions. Now we'll see where they end up... Fed Direct.. yep, lots going that way. Another Corporate.... duh! "Anywhere but here!" was the rallying cry of the old WesCorp owners. Time to shut it down and move on.

The "11 ratios every board should know" meets the KISS principle

2011-08-23T09:02:00.000-07:00

1 – ROA Is it positive? Is it becoming more positive or less? Keep an eye on the components that make up the ratio. ROA is a benchmark… the following are the building blocks.

1a – Gross Spread – the difference between cost of funds and yield on earning assets (loans and investments). Again, is it growing or shrinking?

1b – Non-interest Income/ Total income - How dependent are we on this income?

1c – Operating expenses / Assets – how expensive are our operations?

A to C gives a glimpse as to why ROA is either great or just making sucking sounds.

2 – Net Charge offs to total Loans. It’s not what you make, it’s what you keep that's important.

2a – As a general rule, loans that are not delinquent are not losses…. Keep this low and all good things will follow. This is the barometer of what #2 will be. (In general – we have all witnessed the phenomenon of “current to c/o” because of bankruptcy. I call these “lightning losses” …. They strike hard, without warning, and from the damndest places!)

3 – Net Worth. You have to have it and you have to keep it to fulfill the #1 rule of CU’s --- BE HERE NEXT YEAR! #1 and #2 will indicate if this is going to be a good ratio or a problem ratio. Lose sight of this ratio and you are either in PCA hell or Toast... AKA, between a rock and a hard place.

3a – RBNWR – for those of us who push the envelope in investing (because lending sucks), sometimes we need more Net Worth than the minimum 7%.

Increase income, decrease expenses, shrink assets, make better loans, and investing wisely are methods to assist you in the successful management of these ratios. It’s not complex, but it’s not easy… it takes all our waking hours to be vigilant in keeping these in balance when times get tough.

Get these three right, and life is good…. If they fall out of whack… you’ve got some (or a lot) of work to do.

If the decisions seem tough…. Refer to the #1 rule of cu’s…

Guest post - Fed Direct... It's easy, it's safe, and better than funding WesCorp!

2011-08-15T13:39:00.000-07:00

I sat through umpteen meetings where I was told by the folks at WesCorp... "Don't go to the Fed, gloom and doom are sure to follow". Scare tactic after scare tactic. "Watch out for the Fed-man". Ok.... so a few folks didn't drink the Kool-aid and went to the Fed.... GUESS WHAT? No SWEAT!

I asked a real live Fed user to tell everyone about the experience.... This is what I received:

We are a federal credit union located in the County of Los Angeles. We went Check-21 direct to the Federal Reserve over 5 years ago. Yes, we moved to the Federal Reserve before WesCorp went Bankrupt (Bankrupt is a technical term for Conservatorship). The Federal Reserve is a branch of the U.S. Federal Government. Unlike the NCUA, the Federal Reserve provides products and services that are of great benefit to financial institutions. Imagine a branch of the Federal Government that is competent. It could happen. We are pleased with the level of service at the L.A. Branch of the Federal Reserve. Contact Manuel Ramirez the Account Executive for Business Development at the Federal Reserve. Manuel can be reached at (213) 683-2885. Ask Manuel for credit union references. We have had no counterfeit checks, no forgery, and no complaints. We get immediate settlement credit. Returns are prompt. We balance daily to the Federal Reserve and it takes all of 15 minutes per day. Going direct with the Federal Reserve is less expensive & more efficient than going through WesCorp FCU. We would do it again. We have no regrets. Don't take my word for it. Give Manuel Ramirez a call at the Federal Reserve and get credit union references.

There it is... from the mouth of a real end-user. So, now who are you going to believe? Someone begging for your future monies, or a fellow CU that has nothing to gain?

There are options.... REAL live and functioning options.

You'da thunk the CEO's of Western Bridge, the League, the board of Western Bridge, and the "Nifty Fifty" in Newport would have clued us in.... NOPE... we play politics... we don't cooperate or assist our fellow cu's.... unless we need them to serve our purposes!

Thank you GUEST POSTER.... one honest voice!

Don't fear the Fed.... Don't drink the Kool-aid.... Take the options available.

It grinds this blogger that all of a sudden Corporates have become sacred cows.... we put them in place back in the 70's to serve a need... Is it just possible that the need has passed, and others can do the job better? AND for less?

Just because they will soon be turning out the lights in San Dimas, doesn't mean you will be left in a lurch.

Step-up bonds are great for yield, but be careful of PCA. Another NCUA incompetent moment.

2011-08-02T22:17:00.000-07:00

Ok... so here's the deal... You can't lend in this market so you look to your investments to "bring home the bacon". After everyone has looked at every type of bond out there, the only one that makes any sense at all is the step-up bond. They start at 2% to 3% and move all the way up to 7% or 10% over 8, 10, even 15 years. Wow, you say. That long? Yes, and here's why... NONE OF THESE HAVE EVER GONE TO MATURITY. Somewhere along the way, the rate will step up above the market and the bond will be called. With the right broker you can get these at a discount. Even if the bond is called after the first lock-out period... you earn 4 to.5 TIMES what you would anywhere else. So it got called? So what? Go buy another. DUH!!!!

So why do I say NCUA is incompetent here? If you have these, you have to risk rate them to MATURITY (the % you must keep on hand in equity for a 10+ year bond is 20%).

Why is that incompetent? You see, when we fell victim to this scam by NCUA a bunch of years ago, I actually called NCUA and talked to the Alfred Henry who put that in place. I was told in glowing and fatherly terms that "NCUA is trying to make the call report easy to complete (I remember his exact words) and calculating average life on these would impose too much of a burden". After ADMITTING that NONE OF THESE EVER go to maturity, he stated that NCUA had to draw a line somewhere and "unfortunately" these fell on the "RISK RATE TO MATURITY" side of the equation... "We're NCUA and it sucks to be you" - paraphrase by me.

So now our UNDERSTANDING NCUA examiner came in to me (and I've heard of others as well) and said WE'VE FOUND YOU IN EXCESS OF YOUR RBNWR ON X-Date.... You are now under PCA. Ok, how did I get there? Too many long bonds I had carried at average life that put us over when they were rated to maturity. So, I sold one bond and WHAMO SMACKO... I was under the RBNWR. Cool huh?

NOT SO... NCUA said I had to serve our my 2 years under PCA for that transgression, even though it was corrected the same day the error was pointed out. Then another Alfred Henry from NCUA came in and had the nerve to want to talk to me about my earnings and how I was going to get back in their good graces and work myself out of PCA....I verbally threw him out of my office.

How do you get to PCA even if you have over 10% equity... your RISK BASED EQUITY REQUIREMENT MAY EXCEED YOUR EQUITY. Look on page 11 of your call report to see if that exceeds 7%. You can also look at page 12 to see the actual calculation (and do some "what if" scenarios to make sure you don't get sent to PCA Jail!!

Story as current as this week. Another cu in another state had step-ups and had them term-listed based upon average life on page 1 of the call report. Their examiner comes in and does a exam effective 3 or 4 months ago and finds that they should have been listing their step-ups at maturity... The examiner makes the changes and finds the cu has insufficient reserves for its RBNWR and slaps them with PCA.... Here's where it gets good. All those bonds have been called in the intervening time and they are currently under the RBNWR. Cool HUH? No... "I did the exam as of that date and on that date you were undercapitalized --- Go straight to PCA Hell for two years". They can expect a visit from another examiner in the near future wanting to "help" them with their earnings issues.

And you wonder why I rant? You can't make this stuff up!

Recently someone sent me an anonymous email (that's ok I'm kind of an anonymous kind of person here anyway) and stated I was a blow hard as evidenced by some perceived benchmark they held to. Well, Sir or Madame, it's not being a blow hard when you are right or you are pointing out a wrong being done. Perhaps this person was offended by characterization of the board members of WesCorp or of the action of NCUA. Get over it! WesCorp was a train wreck caused by management and enabled by incompetent board members. Just because they escaped going to trial, doesn't mean they were blameless.... it just shows how incompetent NCUA is in putting a case together when they co-enabled the debacle. If you don't like what I'm saying.... you must not be paying assessments... because everyone that is, HATES what happened to them and whether they say it or not... hold NCUA as accountable as anyone else for their pain and suffering.

If you have some facts that I gave that are wrong, let me know... I've been wrong before.... After all, this is 1st Thoughts.... not second or after the fact. But, whoever you are, I don't post snarky comments.... Go get your own blog and flame me there if you like. Expound upon what ever floats your boat.... it's a free country (for now).

If anyone has questions regard the RBNW and how it "REALLY" works, drop me a line with your cu name and I'll give you some more direction from your actual call report data. I could save you from unnecessarily going to PCA Hell!

Yogi Berra has met his match... Debbie Matz!

2011-07-26T10:46:00.000-07:00

Here is the newest "Matz-isms" I found:

"Although it may seem counter intuitive at first, allowing credit union to make more member business loans would allow credit unions - and NCUA - to manage risks more prudently."

WOW! "Counter Intuitive" "NCUA to manage risks more prudently"

How about their track record of abysmal and total FAILURE? How about the oxymoron of NCUA and Managing Risks being used in the same sentence? How about their whining to the judge regarding WesCorp that they are a small agency and strapped for resources? How can a do-nothing organization like NCUA "MANAGE" anything?

This was followed up with - "At NCUA we take great care to ensure that our rules keep pace with market changes.... "

Really? On what planet did that happen? In what galaxy far far away, in some dark and distant past?

I see her lips moving, but I only hear Yogi coming out!

The Prom - a guest post

2011-07-06T14:21:00.000-07:00

An admirer of this sight wanted to see if I would post "anonymously " for him/her. Well, I do that myself as a matter of course, so I thought - "why not?" While I don't agree 100% with all the statements made... the point is well taken. ENJOY!

The Prom”

Credit Unions are based on a simple, cooperative principle: the whole is bigger than the sum of its parts. Hence, the movement was formed to provide the undeserved an alternative to the predatory practices and cold shoulders of banks. The movement provided an opportunity to share the risks and benefits of financial services among the “owners” of the credit union.

So what’s that got to do with “The Prom”?

In today’s credit union merger environment, one has to ask the question “At what size does a credit union get so big as to lose sight of its roots?” Granted the regulatory environment, we currently find ourselves buried in forced mergers to gain the economies of scale to survive.

This culture of Big Brother poking at the inner workings of the cooperatives isn’t about to change soon. The NCUA mantra of “We know better!”, “Manage your Risk (the way we tell you to)!”, and “We’ll Examine you Until There’s Nothing Left to Examine and Then We’ll Decide How and When You’ll Merge” isn’t about to change anytime soon.

Anyone who understands risk knows you can’t reduce it to zero. But that is just what the regulators are trying to force credit unions to do. As a result, many Credit Union loans today are based purely on computer generated credit scores. Whatever happened to a credit union knowing its members and working to provide for their needs as individuals? Whatever happened to lending based on character, a name, and a handshake?—People Helping People!

Imagine for a minute a group of fishermen, oyster men, shrimpers, charter captains, ecology tour guides, and associated tourist and seafood industry people in Apalachicola, Florida, a small fishing town in the Florida Panhandle. The three community banks that existed last year all failed or were bought out by other banks that subsequently failed. What remains are two branches of large nationwide bank headquartered in Arkansas, which will soon consolidate. This out of state bank that purports to be a community bank services the people we want to study. Service has declined significantly.

Suppose our handful of individuals in these industry groups got together and decided to form a credit union. What would be the result? My prediction: Nothing. No credit union could ever form. The rules directing capital ratios, the rules delineating risk management, and the rules of governance will all conspire to prevent a credit union ever developing a viable charter. After all, how many have been chartered in the last 10 years? But that doesn’t mean there isn’t a need, and in other areas besides Apalachicola.

Yes the need for People Helping People has never been greater, especially in many smaller communities in these troubled economic times.

I’m afraid, however, that the NCUA has gotten so political it has lost touch with its owners—the credit unions. You know, the ones who pay their bills.

As the old saying goes, “Remember who brung ya to the Prom!”

“People Helping People.”

Y.E. Fun Facts for the large CUs and more reasons it sucks to be small!!!

2011-05-20T21:23:00.000-07:00

If we look at the divergence in cu asset sizes ($2 -20, $20 - 50, $50 -100, $100 - 500, $500 - 1B, and 1B+) over the last 15 years, you will notice some interesting trends :

- $1B+ ROA for 2010 average = .720% The smaller cu's ($2 -20) haven't seen those kind of ROA numbers since 2001. In 1995 the difference in ROA between those two categories was 5 BP... It's now the largest ever at YE 2010 at 88BP.

- For Non-Interest Income as a % of total Income the spread between the largest and smallest was 268 BP in 1995. It now stands at 611 BP. More than double. Rarely has a smaller asset bracket exceeded the average income of the next larger bracket over the 15 years. Bigger is Better.

- It pays to be a member of a larger CU. The difference in Dividends as a % of Income in 1995 was 800 BP, and now it's down to 474 BP. In 2005 and 2007 this spread increased to over 1475 BP. However, after the larger shops stopped their growth streak, it fell dramatically.

- The efficiency ratio is another indicator (the cost to produce $1 of income) of the advantage larger cu's enjoy. In 1995 the large shops were $0.07 more efficient at just over $0.64. Fast forward to 2010 and that becomes a whopping $0.21 advantage to the largest cu. There is some channel noise with the write-downs and subsequent reduction of ALLL, but this has been an ever-widening trend since 1995.

- Yield on Assets - Advantage smaller cu. But, what do you expect. If you only make signature and auto loans, you have higher yields than with Real Estate loans. The 71 BP advantage in 1995 is now down to 5 BP. So, small cu, enjoy it while you can. In reviewing the entire trend, 1995 looks to be a spike. The advantage for small shops held almost constant at 30 BP until 2008 and then it's dropped off significantly.

- Same with Net Interest Spread. Advantage small shops, but smaller now: 124 BP to 59BP.

- THIS IS KEY - OPERATING EXPENSES AS A % OF ASSETS: In 1995 the largest had a 96 BP advantage. They now have 136 BP advantage. The large shops are saving $13,600,000 per year per Billion in their office efficiency. If a $20 M shop had this same ratio, they would be saving $272,000 in expenses each year. Do you think they would be profitable then? Heck Yes!!!! This is the TRUMP RATIO that makes bigger better. This is also the one area you have the most control over. This is where small shops need to concentrate and COLLABORATE ALREADY!!!! DO IT FOR YOUR MEMBERS. Your cu's very existence depends on it.

- One more fun facet to look at. This tells us as an industry how vulnerable we are to Non-Interest Income.
Take non-interest income away from the ROA and what do you have? In 2000 the $100-500 category cu's bottom line went negative first. In 2001 all the others did as well, except the $1B+ cu's. They didn't have a negative bottom line until 2004. That year every cu category went negative, and they all stayed there. EXCEPT - the $1B+ became positive in 2009 and they are the only category that has remained positive since that time. EVERY OTHER CATEGORY HAS BEEN NEGATIVE SINCE 2004, WITH THE SMALLER SHOPS SUFFERING THE MOST. So, only the $B+ shops are making it on the spread. They don't require NON-Interest income to turn a positive bottom line. The rest of the shops now need 40 BP, or more, of Non-interest income - JUST TO BREAK EVEN! Think of it this way... The large shops are standing in neck-deep water. The rest of us are in over our heads.

So, when we hear that cu's are getting better and pulling out, let's ask which size cu's they are talking about --- The 1B+ shops or, everyone else?

What comes after QE1 and QE2.... Inflation or QE3?

2011-05-18T12:31:00.000-07:00

There is a great article in Financial Times : http://www.ft.com/intl/cms/s/0/96ec2b02-8146-11e0-9360-00144feabdc0.html?ftcamp=crm/email/2011518/nbe/ExclusiveComment/product#axzz1MjL4EYXz

It discusses the next step from here. QE2 is about to end. Conventional Wisdom suggests inflation. Check out what Galbraith refers to Conventional Wisdom as (since he brought the phrase to popularity).

If you doubt where the author is going... consider that Japan went through QE8 and was still a wreck before the tsunami hit!

"What's that mean to me as a cu?" Glad you asked! If you've been staying short and waiting for the rates to rise - Don't. Ladder out longer now. Just be sure to use step-ups or variable investments. Never fixed.

Some have seen a resurgence in borrowing. That's great, but don't give the store away on very long term loans a very low fixed rates. That's akin to putting all your eggs in one basket.

I happen to agree that we are in for a long slow slog back... There is no rainbow and no pot of gold waiting for us in the near future. We've been on a 25-year buying binge... the consumer is learning a new lesson in a new economy right now. I don't see massive running up of personal debt any time soon. Remember, it was the consumer who drove 70% of our economy for a long time. We don't have the economic engine to pull us through, this time around.

NCUA is Helping Durbin... Not CU's! CUNA's got it right!

2011-05-10T12:55:00.000-07:00

According to the NorthWest CU Association:

CUNA is concerned that a recent letter sent by the National Credit Union Administration (NCUA) to the Federal Reserve Board regarding debit interchange fees does not accurately reflect the costs associated with card programs.
At the urging of Senator Durbin, NCUA surveyed “direct costs and income” related to credit union debit card transactions. However, a chart attached to the letter appears to demonstrate that credit unions in the range of $500 million to $1 billion make $0.35 per debit card transaction, with credit unions over $1 billion making $0.36 per transaction. For those who take the time to read the letter, it clearly states that not included in those costs were factors such as “labor, facilities, equipment, and other overhead costs related to operating a debit card program.”
Further analysis would find, as credit unions know, that the costs of running a debit card program are not simply per-transaction fees but require significant back-of-house work, time, technology, and many other components.

Instead of just acknowledging that the analysis “likely underestimates costs for debit card transactions” in their letter, CUNA is pushing NCUA to revise this chart to include all costs related to offering debit cards.
Unfortunately, a document like this, as grossly misleading as it is, was provided to the Federal Reserve by NCUA as an accurate representation of debit card fees. It provides fodder for those opposing delay of the Durbin interchange amendment, which, without Congressional intervention becomes effective July 21, 2011.

So....... Who do we write to now.... Durbin or NCUA? Or, Both.

Gee thanks NCUA for the shot in the foot!!!!

Anyone besides me think NCUA is out to end CU's as we know them? Run them into the ground, merge them down to just a few, and then turn the remains over to FDIC.

The dam is about ready to burst - $425 Billion in troubled loans to be "handled" at B of A!

2011-05-09T15:58:00.000-07:00

According to the Financial Times: B of A, aka Big and Apathetic, is about ready to dump $425 Billion in troubled home loans. This in order to "resole problems" related to its purchase of Countrywide Financial. B of A plans on doing this over three years. Guess who's holding those loans for close to 30 years? You and I are. Remember WesCorp? Remember how much they invested in Countrywide? Remember how NCUA sold off the future cash flow of those loans? Remember how we are holding the principle balance? Remember how they said the eventual losses will be between $11 Billion and $16 Billion? We are about ready to find out how much of that "stuff" WesCorp purchased. Let's see how the "tranche warfare" worked out for the financial wonder boys. I'm curious if the shoe will drop on cu's in this go-around of shedding loans, or will it come when B of A addresses the remaining $425 Billion in bad loans?

Amazingly, B of A is only addressing 1/2 their troubled loans here. It seems that they are worried about the banks overall performance and that waiting may "tarnish" the reputation of Brian Moyniham, it CEO. Tarnish his reputation? Really? What positive reputation could he possibly have at this point? The key word there was PERFORMANCE. You see, the real reason was the impact these loans have on bonuses. I wonder how many B of A big wigs are paid multi-million bonuses and are still upside down on their home loans? How ironic would that be?

We actually need this action by B of A and a few others. We won't start a true recovery until the housing market is addressed. It's kind of like watching the doctor bring out a big needle. You know you'll be better for taking the medicine, but you just don't want more pain!

Our first dose of medicine is coming up soon. Let's just hope it cures us, not kills us.

I guess the 3 C's of credit are so old, they are new again!

2011-04-20T14:59:00.000-07:00

Here's a shocker! According to an article in the CU Journal... members now will have to show their ability to repay the loan under new regulations. Gee, what a novel idea! Who would have thought that the ability to repay a loan would ever enter into the decision process? Perhaps that's why nobody could do what Countrywide did:

WASHINGTON – Lenders would be required to make sure prospective borrowers have the ability to repay their mortgages before giving them a loan, under a proposal released by the Federal Reserve yesterday.

Perhaps if they enforced the regulations and "safety and soundness" issues at the proper time, we wouldn't have been saddled with assessments going forward for the next 10 years (or so).

Amazing that things got so out of hand that they would have to make a regulation concerning this issue.

But, it's OK because "everyone was doing it"; right? Right? And some wonder why folks are so upset!

Gee, no kidding! Greenspan says Dodd-Frank out of touch.

2011-03-29T10:56:00.000-07:00

According to Financial Times: "Dodd-Frank fails to meet test of our times"

By Alan Greenspan
Published: March 29 2011 18:31 | Last updated: March 29 2011 18:31

The US regulatory agencies will in the coming months be bedevilled by unanticipated adverse outcomes as they translate the Dodd-Frank Act’s broad set of principles into a couple of hundred detailed regulations. The act’s underlying premise is that much of what occurred in the market place leading up to the Lehman Brothers bankruptcy was excess (hardly controversial) and that its causes would be readily addressed by this wide-ranging statute (questionable).
The financial system on which Dodd-Frank is being imposed is far more complex than the lawmakers, and even most regulators, apparently contemplate. We will almost certainly end up with a number of regulatory inconsistencies whose consequences cannot be readily anticipated. Early returns on the restructuring do not bode well. "

There is more to the article, but FT frowns on cut and paste... You can find them on the web. They are a worthwhile publication you should consider purchasing a subscription.

Personally, I think it's the kettle calling the pot black... but then I never was a Greenspan fan in the first place!

What's your time horizon?

2011-03-07T08:11:00.000-08:00

How far down the road do you look when making decisions? What environment's pertinent to your outlook? Are you all about the "here and now" or do you look longer term? If you follow the press... it's all about now. If you follow your members needs, it's a much longer term that needs to be considered.

In fact, I always take action following the following axiom: Rule #1 -- Be here next year.

That's pretty tough when our numbers come out monthly, we have an annual budget, and we are constantly renewing our 5-year plan. We really need to gaze further down the road than those short time-frames.

We certainly can't ignore current trends, but we should reflect how that will impact the future. I've seen cu's making 3% auto loans for up to 60 months. If they looked at their short-term investments, this may look to be a good idea. However, 36 months from now, that may not have been the best use of their funds. Especially when you figure in maintaining the account, statements, loss ratios... etc.

Like a good poker player, you've got to know when to hold them and when to sit the hand out.

This is why going longer on investments is a good idea!

2010-10-10T19:21:00.000-07:00

What are most cu's getting for their Investments now? 1% or 2% if they are lucky.

REAL investment I made in 4/2010 that was called 10/2010: Purchased at a start rate of 3% that eventually went to 7% over an 8-year period. That's right, 8 years. "HOLY COW!"... that's a long time for a cu investment you say. Our policies won't allow us to go that long. The auditor and the regulator says we should stay short as rates are going to go up (Unless he/she has a much clearer crystal ball than I do.. I see them staying down for a while). We can't do that... it's un-credit-union-like (Like buying CMO's was? Or the Interest-only-payment-optional-negative- amortized loans were not doomed from day #1?).

Oh yeah, I forgot.. I bought it at a discount: 99.4% of face. You could never get that at your Corporate. AND, heaven forbid you had to access your funds, you would be charged an early redemption penalty.

Ok... So it was called... I originally picked up $250K of this bond. I wish I had purchased more! I earned 3% for 6 months plus a $1,500 bonus when it was called at par. My total return for the holding period? 4.20% - purchased just 6 month ago.

But you have to reinvest it you say. What will be the return then? Actually, this one stayed home. My members are paying down their debts and our shares are being withdrawn so I didn't reinvest. But, had I only received 1% for the rest of the year, my yield would have been 2.60% for one year... How are you doing? If I had received 2% on a new step-up, my yield for the year would have been 3.10%. Not too bad in this market.

A funny thing happened at my regulatory review this year. I had marked-to-market my Bank CD's. I held them in Available for Sale and they have market values. The two regulators at first said, Bank CD's don't Mark to Market. Then I showed them the ratings and then they agreed with me. I actually have a bunch of 5-year bank cd's I picked up a few years ago. They are yielding 5% and have 3 more years of life left in them... I bought all I could get my hands on at the time. They are all purchased at par, but the market value is 111% of par. Think about it. What's a 5% 3-year investment worth now? Back to the regulator... They wondered why more cu's didn't do this. I don't know, but they sure purchased the heck out of corporate cd's that were paying much less, had no market value, and couldn't be sold. My old corporate used to have a webinar for cu's about investing... it was the most condescending blather I ever heard. They wondered out loud about step-up's. " Who would be so STUPID as to purchase one of those? Let me tell you how much better our own investments are (YEAH, WE ALL NOW KNOW THE TRUTH OF THAT PROPAGANDA!). We are the experts and the naive cu's need us to protect them. OOPS, I used a big investment term here, I better back up and inform the poor slobs at the cu what that means... they OBVIOUSLY don't have a clue what that means. "

Even if the new regulations for Corporates allows for purchasing of corporate cd's... THIS CU NEVER WILL - BECAUSE THEY NEVER EVER MADE ANY SENSE IN THE FIRST PLACE!

This hurts to say this, but NCUA actually did many cu's a favor. Now they will go out there and search and find investments that actually pay better and serve them better than what the corporates were ever offering.

The complacency of cu's, along with the "We built it, so it must be the best" mentality has cost us dearly. $16 Billion at last count!

DOOOHHH! Bankers forget the "C" in CMO's

2010-10-05T06:47:00.000-07:00

Wondering why the banks are just not getting around to foreclosing on their loans? It was reported today on Bloomberg that in their haste to package up these deals, they cut costs everywhere... INCLUDING perfecting their lien on the properties. So, we see a massive (up to 5 million homes) that are basically unsecured loans to the homeowners.

Seems you can't foreclose on a property you don't have a deed to! Pretty basic lending... except if you're a bank... then you just do what you want and the taxpayer's pick up the tab.

"When's my next golf tee time? I've got another big deal to close and the client loves to play golf. Did my bonus get posted yet; my 5th house is due to close this week."

Tough to be a banker and keep it all together..

__________________________________________________________

THIS IS HUGE... AND, SO FAR, IT'S GETTING LITTLE PRESS....SECONDARY SOURCES:

http://www.reuters.com/article/idUSN0521683520101005

http://www.housingwire.com/2010/10/05/the-greatest-heist-in-our-countrys-history

Hey, who's side are we on here?

2010-07-15T21:13:00.000-07:00

There wasn't much to talk about for a while until the dust has settled, but seriously, how can credit union's hold their heads up and say that they represent their members right now?

We went bonkers to protect the interchange income. Gee, who really profited from this in the first place? Not us and not our members? We actually stood against our members being able to get a discount for paying cash instead of using a debit card that might actually overdraw their account and garner us another fee? Are you SERIOUS? I saw recently that someone lamented that we have become an industry instead of a movement. Well, this proves it in spades! It used to be that if it's good for the members, it's good for the credit union. Now I guess the measure is if it's good for the bottom line!!!

Are we now so profit oriented that we put income over service? Well, if it's all about "making the numbers and sending the board to an off-shore planning session", then that may be true.

7 brave credit unions are attempting to bring this reign of "crass capitalism" to a close. A signal must be sent that you can not put the entire industry at risk because of excessive risk-taking. Management and boards will be held accountable for excessive risk taking on a personal level. We've all heard and know credit unions that are bank-like. Going forward, they might just find themselves in a suit or two, like our new CUNA President. It's a sad day when the best candidate for our national association is under two legal suits for potentially destroying the entire industry CUNA represents...... How ironic is that?

Then we have the still popular and undecided MBL. Let's see, Arrowhead is under conservatorship and the fist action of NCUA was the stopping all MBL activity. Could that be because Arrowhead had extensively and practically singularly promoted MBL for the last 4 years? They and other cu's, like the banks of the 70's, are chasing the lending product du jour. Everyone seems to be determined to raise the ceiling on lending limits. Surely, this will solve all our problems. Perhaps we should rethink the charter of the "natural person" credit union.... You know... the one we operate under! Patelco under a different ceo was rumored to come to SEGs and offer membership to the front-office people but not the back off folks. That was wrong then, and chasing business members while leaving the natural person members on their own is wrong now.

Now our industry acts as if the Legacy assets of USC and WesCorp have somehow mysteriously disappeared. We are fighting for MBL and interchange and we don't even know if we will survive the corporate debacle.

I find it surprising that everyone touted how well Arrowhead's eminent recovery was going to be.. and yet there wasn't one dime set aside this year for NCUA's assessment. Did they think there would be NONE? How about 10%, 20% or 40%, like most think it will be? Surely it's not zero! I wonder how many other cu's out there have turned a blind eye to the coming assessment and put nothing aside? Are we more concerned about how we look, or how truthful we show our financial position to our members?

NOTE TO CU'S THAT SEE THEMSELVES AS BANKS ----"DO US ALL A FAVOR AND CHANGE YOUR CHARTER ALREADY!!!"

If the credit union charter doesn't fit your business plan and your personal goals of glory and riches... We'd love to help you out -- Which way did you come in? Just leave your fair share of the assessments before you leave, please!

For those that are "Mad as Hell and aren't going to take it any longer!"

2010-03-22T08:31:00.000-07:00

This blog is for credit union folk... not bankers hiding behind the credit union charter. Not for folks that have abandoned the original premise of credit unions for fun and profit.

This is a blog for those that want to take ACTION. If you are in "seminar" mode and want someone to tell you what to think... I can't help you out... but, I can give you some things to think about.

We are at a cross-roads for our industry. NCUA, CUNA, and even NAFCU have abandoned us for expediency and quick profits.

We used to be about members.. now we are about Asset Accumulation and Business Services (As if these are the end-all to our problems).

ACTION ITEM: Speak out.. loud, proud, and often. Get out of Seminar mode and into Action mode. This industry is leaderless at present. We've invited the bankers into our midst's and instead of them becoming credit union folks... we've become more bank-like. If you don't speak out, who will?