Legacy assets. In the fine tradition of "deferred success" and "convenient terms," yet another euphemism aimed at telling it like it isn't. Within credit unions, so far most of the discussion, including at last week's special open board meeting hosted by NCUA, has focused on the "assets," with very little attention given to the "legacy."
And yet it is the legacy that is really what's most at stake right now for credit unions.
Perhaps it's because so many people secretly are linguists that they don't more often use the oxymoron "toxic assets" to describe all those failed, near-worthless or sharply depreciated investments held by corporate credit unions, but the term is more appropriate. Those investments have been toxic all right-to CU balance sheets, corporate management teams, credit unions' image-toxic to everyone but that group immune to all toxicities, lawyers.
But what of that legacy? You can never get the real measure of a person when times are good; you only see their character and heart and soul when times are difficult, and the past few years qualify for just about everyone's definition of tough. Similarly, you never get the real measure of the competency of a company or credit union's management team and board when times are good, margins can be seen without microscopes, and the home appreciation curve is a one-way trend line (up) in the PowerPoint chart.
The Other Bubbles
But when the bubble burst, well, that's another flawed euphemism, because it was really about lots of smaller burst bubbles for CU managers and CEOs and their boards. At varying speeds many of those CEOs and managers would come to realize they weren't (and aren't) very efficient, they were (and are) overstaffed, that some branches may look good but were (and remain) a drain on the bottom line, and that the board was (and is) a decade behind in adjusting to new realities. For these CUs, their legacy is a plot in the Cemetery of the Conserved or a shared room in Mother of Merger Hospital (with the charter of one CU and the long-ago plans and dreams of a group of founders both on their way to the morgue).
For many other credit unions, however, the legacy is one of solid management, steady leadership and the fortitude to get up off the floor, bruises and all, with a hard-learned lesson on where punches can come from. These CUs are a tribute to the Japanese proverb, "Fall down seven times, get up eight."
And what of the legacy of the credit union community itself. It certainly has been knocked down more than seven times over the past 10 decades, and it has gotten up each time. The most recent knocks have been the assessments, including the announcement by NCUA that another premium, this one of 0.124% of insured shares, will be arriving soon. That premium alone represents $933 million of members' money, and it is the real heart of the legacy question. When banks lose money (of course, if you're large enough, you get taxpayers to absorb the losses for you), it is money from investors who knew they were taking a risk (and expect a return). Members place their savings in credit unions for the opposite reason; it's boring, but safe, and in exchange for the safety they are willing to trade rate of return.
While no member's money is at risk because of the assessments or a merger or even red numbers on the quarterly 5300, they do see less visible losses, such as reductions in branch hours (or scuttled plans to open a branch), fees the credit union would have never previously charged, and fewer product and service introductions. That isn't a legacy any credit union wants to leave for members.
It wasn't discussed at last Friday's NCUA meeting, but the agency's legacy is at stake, too. It helped manage corporate CUs into this mess-if some lesson isn't learned out of having had examiners on site at both WesCorp and U.S. Central, right up to the day of conservatorship, then the only legacy here is utter failure. When it took over those two corporates it did so by saying it acted "to stabilize the corporate credit union system and resolve balance sheet issues." Now NCUA is attempting to push forward a plan for dealing with as much as $50 billion in so-called "underwater" investments without drowning anyone else. Who would have ever known accountants would spend so much time as lifeguards?
Fundamentals Fundamentally Needed
Last week, in remarks before NAFCU's Congressional Caucus, NCUA Chairman Debbie Matz said the agency's goal is to "fundamentally change the way the corporates operate." And therein lies the paradox for America's credit unions. The fundamentals of the credit union business model do not need to change; indeed, if the past few years have proven anything it is that the American consumer needs a cooperative, democratically run financial institution more than ever before.
Do you agree? The trade groups have sounded off, and Credit Union Journal has received numerous letters to the editor in recent weeks, many seeing signs that the End Times are on nigh for CUs as the result of NCUA's actions. We'd like to hear from you, too. Take a moment and click on the letters-to-the-editor tab at CUJournal.com and share your thoughts.
Ultimately, none of this is up to a government agency, it's up to you. In the end, what really matters isn't those legacy assets, but how credit unions make an asset of their legacy.
Frank J. Diekmann is publisher of Credit Union Journal and can be reached at email@example.com.