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Recapitalize?

We are interested to find out what credit unions are planning to do in regards to recapitalizing their corporate credit union.

Click here to take a 1-question survey and let us know!

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How Will Corporate Restructure Change Short-Term Investment Strategies?

While much progress has been made toward a revamped corporate credit union system, uncertainty still surrounds the questions of which corporates will emerge and what products and services they will offer.  One thing that does seem certain, though, is the eventual lifting of the Temporary Corporate Credit Union Share Guarantee Program (TCCUSGP).

The TCCUSGP is currently extended until the end of 2012, but when it is allowed to expire, credit unions will be faced with the question of what to do with their newly-uninsured money.  This is no small chunk of change.  As of third quarter 2010, natural person credit unions had $40B in cash on deposit and $21B in other investments with CCUs (not counting corporate capital).  That $61B represents about two thirds of total natural person credit union equity.

The decision to keep lots of money in corporates has almost been a non-decision.  Credit unions have historically high levels of cash they need to invest.  The return on corporate investments isn’t great, but it isn’t great anywhere and they are fully insured as long as they have maturities of two years or less.  How will your investment strategy change when the insurance drops to $250K?

  • How much in uninsured deposits are you comfortable having in a single entity, including a corporate credit union?  What is your due diligence process?
  • When the guarantee expires, how will the transition process work?  How will you assess the adequacy of your corporate credit union’s liquidity?
  • If you choose to branch out by purchasing investments that are new to you, do you have the resources and expertise to perform proper due diligence and evaluation?
  • If you decide to stay under the $250K insurance limit, will the sheer number of investments be too time-consuming to evaluate and manage?

It’s a good idea to keep these questions in mind as the corporate system restructuring continues so you will be prepared to make a decision when the time comes.

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Corporate Shuffle: Questions To Ask When Searching For Alternative Providers

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Many credit unions rely on the corporate credit union system for mission-critical functions; however, changes in the corporate system are imminent.

Alternative providers could possibly include other corporates, newly formed CUSOs, the Federal Reserve, large banks and publicly held companies.  It is important to objectively evaluate each on their real merits.

Following are just a few questions you may want to consider:

  • What are the three top decision drivers for evaluating various service providers?
  • What are potential threats to your credit union’s business model?  (e.g., if your credit union has high loan demand and your corporate provided a line of credit, what are alternatives?
  • What strategic initiatives are you willing to forego during this service conversion?
  • What will be the hard-dollar cost of the conversion?  Have you budgeted for it?
  • Will the shift be transparent or nearly transparent to members?

Invest the appropriate time to create an RFP that details your requirements and rank them in importance with a weighting system, such as a scale of 1 to 10.  A few examples of requirements you may consider weighting include:

  • Necessity of investing upfront capital to receive services
  • Cost to process ACH transactions
  • At least __ years of previous demonstrated financial strength
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Ideas for the Future Role of Corporate Credit Unions

Since launching c. myblog on Tuesday, we’ve received numerous emails and phone calls from credit unions expressing a wide range of ideas about the future role of corporate credit unions.  We thought we would summarize a few of them and ask those of you viewing c. myblog to vote on them – anonymously.  Of course, we encourage you to add your thoughts as well.

The ideas are listed below and will show up as comments to this post.  Please vote on each one using the star system shown below each comment by clicking on the number of stars you wish to assign each idea.  A vote of one star means you completely disagree with the idea.  A vote of five stars means you completely agree with the idea.