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!
Tuesday, July 26, 2011
Wednesday, July 6, 2011
The Prom - a guest post
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.”
Friday, May 20, 2011
Y.E. Fun Facts for the large CUs and more reasons it sucks to be small!!!
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?
- $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?
Wednesday, May 18, 2011
What comes after QE1 and QE2.... Inflation or QE3?
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.
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.
Tuesday, May 10, 2011
NCUA is Helping Durbin... Not CU's! CUNA's got it right!
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.
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.
Monday, May 9, 2011
The dam is about ready to burst - $425 Billion in troubled loans to be "handled" at B of A!
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.
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.
Wednesday, April 20, 2011
I guess the 3 C's of credit are so old, they are new again!
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!
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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!
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