BIRMINGHAM, Ala. — This year "weak" corporates will merge out and in 2012 those relying on providing pass-through services will fall by the wayside.
Thomas Bonds, CEO of Corporate America CU here, predicts five to seven corporates will be consolidated in 2011, leaving those "trying to hold on with their fingernails to the pass-through mentality" to disappear in 2012.
"You will be left with something over a period of three to four years akin to regional corporates. But unfortunately, some of those regional corporates will be exclusively payments system providers charging higher prices."
Bonds believes the successful corporate business model is still going to be-in spite of NCUA's regulations-one that provides both payment systems, as well as liquidity services and investment products. "And when I say investment I don't mean brokerage. I mean storage of excess liquidity offering a fair rate of return."
While many corporates, Bonds contended, are focused on payments systems and dramatically shrinking the balance sheet, the CEO stated that Corporate America is not ignoring the liquidity and investment components of the corporate business model.
"It does make capital requirements a little more difficult. But we have more tier one capital than any other corporate in the country and it has been all voluntary."
Those that fall in 2012 will do so, contended Bonds, because they are relying on providing pass-through services for which natural person CUs will see them as "middle men." If the business model is simply upcharging services that are actually performed by a third party, then those corporates will not be adding any value to the system and their members will see this and force them out of the system quickly. In 2011 many corporates will be excited to have a chance to survive in this new environment, but it will be a very short-lived survival, except for a handful."
Office Of Corporates Also Could Be On Chopping Block
Bonds went on to predict that the Office of Corporate Credit Unions will be eliminated within 36 months and that corporates will be regulated out of their regions. "Like it used to be when things actually worked. And with the debacle that has happened with management of risk versus regulation (among corporates), the NCUA and NCUSIF will be split-maybe not in 2011-but in the near future," added Bonds.
This year and the following will result in a lot of "gnashing of teeth," surmised Bonds, but in the end the corporate system will survive. "We will come through this together, and the folks that through the entire crisis have put their members first will do well. Those that tried to preserve their institution or the status quo simply for self interest will be allocated to the trash heap of credit union remembrances."