Survey by Grant Thornton
The results are in and the outlook is bleak. Grant Thornton's 15th annual survey of bank executives indicates that bankers are gloomier than ever about the economy. Only 1 in 10 bankers surveyed claimed to be optimistic about the economy, while 54 percent were pessimistic. In the survey's 15-year history, the numbers have never been this extreme. Just three years ago, for example, only 3 percent of bankers said they were pessimistic.
Many bankers are waiting for the real estate market to hit bottom and for the credit crisis to pass. At the same time, they're hoping they will be able to weather the storm. Sixty-four percent of bankers believe that the bottom will come after May, 2008. Another 17 percent are looking to 2009, indicating that the bottom won't come until after the close of this year. The housing bubble has been damaging to the banks. Homeowners have borrowed all their equity out through home equity loans; when the home values dropped, the equity was erased and banks were left under-collateralized. For March, the ABA reported a housing price decline of 3.6 percent from February, the fifth consecutive monthly decline.
George Mark and John Ziegelbauer of Grant Thornton predict that bankers will "tighten down the ship-tightening the underwriting and build liquidity." Many are getting back to the basics, citing the need to get to know their customers better as part of the solution. It's a smart move, one that will help the banks comply with the regulations, while enhancing cross-selling efforts.
Bankers are concerned about obtaining new customers while taking care of the ones they have. Credit unions pose a competitive threat, particularly with respect to business customers, which have traditionally been a core customer segment for banks. Maybe a renewed bank focus on customer service will result in depositors and borrowers feeling truly valued by their bank once more!
Bank capital is also in short supply and it is harder to raise capital in this difficult environment. Investors are looking for full disclosure of all the risks, including the loan portfolio and liquidity risks. When capital dries up, it's more expensive to acquire. Many banks are trading at or below book value, which, to the banker, makes it very hard to sell stock and let people in for such a discount.
All of these factors and many more are putting pressure on bank boards to understand what is going on in their own banks. Directors need to be proactive about uncovering any problems, rather than waiting for the regulators to find them. If the regulators find problems, it says two things: 1) the board does not understand what is happening at the bank, and 2) the bank does not have proper controls in place.
To download a full copy of the survey, simply click on the link.
Summary by Wendell Brock, MBA, ChFC
www.denovostrategy.com
Paranoid CUNA Requests Documents of Banker Involvement in Blueprint ...
WASHINGTON - The Credit Union National Association submitted on April 3rd a Freedom of Information Act (FOIA) request seeking documents and records submitted by banking trade groups in the development of the Treasury Department's "Blueprint for a Modernized Financial Regulatory Structure." CUNA's General Counsel Eric Richards wrote: "[t]he general public and nearly 90 million credit union members have a right to know if special interests have attempted to influence Treasury policy ...in order to eliminate not-for-profit cooperative financial institutions, limit consumer choice in financial services, and deregulate the American depository institution sector in an unsafe and unsound manner."
NCUA Beefs Up Resources to Examine California CUs
ALEXANDRIA, Va. - NCUA has hired seven new examiners who will focus on the California market. The hiring of additional examiners, according to Credit Union Journal, comes after California credit unions reported one of their worst years in decades as delinquencies and losses soared.
NCUA Unable to Sell Distressed Florida Loans
ALEXANDRIA, Va. - NCUA removed from the market a $26 million package of distressed Florida real estate loans originated by failed Huron River Area CU due to a lack of adequate offers. As a result, NCUA is left holding more than 1,000 Florida loans worth about $210 million from Huron River Area CU and Norlarco CU, which both failed last year because of their involvement in speculative south Florida real estate developments.
Kansas Legislature Clears Bill to Limit Credit Union Membership
TOPEKA, Kan. - A bill limiting the fields of membership and establishing a public notification standard for state chartered credit unions in Kansas passed the state senate by a 35-2 vote and the state house 115-8. The bill, which contains compromise language agreed to by the Kansas Bankers Association, Community Bankers Association of Kansas, Heartland Community Bankers Association and Kansas Credit Union Association, now goes to the governor for her signature. The bill would allow credit unions in a major metropolitan area to expand to adjoining counties, but limits the population to no more than 1 million and limits credit union operations to a single metropolitan area. The legislation also creates new regulatory standards for branching, mergers and field of membership changes. Once enacted, the law would force nine credit unions to scale back their fields of membership.
Texas Legislature to Review Credit Union Department
AUSTIN - The Texas Sunset Commission, composed of legislators and the public, will evaluate the Texas Credit Union Department. In 1977, the Texas Legislature created the Sunset Advisory Commission to identify and eliminate waste, duplication, and inefficiency in government agencies. The Sunset Commission, based upon public input and the Sunset staff report, will make recommendations about the Texas Credit Union Department for the full Legislature to consider when it convenes in January 2009. Information on the Sunset Commission process can be found at http://www.sunset.state.tx.us/.
Merger of Equals to Create $1.85 Billion CU in San Diego
SAN DIEGO - Two large credit unions in the San Diego market have announced their intentions to merge - $944 million First Future Credit Union and $907 million California Coast Credit Union. Membership of the two state-charted credit unions is scheduled to vote on the merger in late April and regulatory approval is expected by June 30.
By Keith Leggett, American Bankers Association
Treasury Blueprint Would Abolish NCUA and NCUSIF
WASHINGTON - Among the long-term recommendations of the Treasury Blueprint would be the creation of a new federally-insured depository institution (FIDI) charter. The FIDI charter would consolidate the national bank, federal savings association, and federal credit union charters and would be available to all corporate forms, including stock, mutual, and cooperative ownership structures. A new prudential regulator, the Prudential Financial Regulatory Agency ("PFRA"), would be responsible for the financial regulation of all FIDIs. In explaining its rationale for a single charter, Treasury wrote "[t]he goal of establishing a FIDI charter is to create a level playing field where competition among financial institutions can take place on an economic basis, rather than on the basis of regulatory differences." The operation of the credit union insurance fund would be assumed by the FDIC, which would be reconstituted as the Federal Insurance Guarantee Corporation. "Some credit unions have arguably moved away from their original mission of making credit available to people of small means, and in many cases they provide services which are difficult to distinguish from other depository institutions." Treasury Department's Blueprint for a Modernized Financial Regulatory Structure.
http://www.treas.gov/press/releases/reports/Blueprint.pdf
By: Keith Leggett, American Bankers Association
Chairman Blair's Message
By Wendell Brock, MBA, ChFC
Recently Ms. Sheila Blair presented the FDIC's 2008 Annual Performance Plan. Ms. Blair's published introduction to the Plan discusses the historical mission of the FDIC as well as the current economic environment. This year, the FDIC will celebrate its 75th year of insuring the nation's bank deposits. And the organization is perhaps finding itself in one of the most demanding years since its founding. Indeed, the FDIC plays a critical role in "maintaining public confidence in the nation's financial system." The challenges associated with this role, given the current financial difficulties, are broad and deep.
The maintenance of public confidence requires the FDIC to manage many different aspects of our nation's financial system. The organization currently administers approximately 250 programs to help keep the banks operating in a safe and sound manner; the FDIC is tasked with insuring deposits, keeping the public informed, helping the banks manage risks, as well as many other action items associated with our banking and financial system.
When problems arise, the goal is to address them promptly, solving them before they become issues that can cause serious financial problems. This requires the FDIC to be prepared to handle failures of insured institutions, "regardless of their number and size." Yes, this means that the FDIC is expecting some bank failures this year and perhaps even some large banks. There have already been two to date; see BankNotes for the press releases on these events. Both failed entities were small banks in Missouri, not much in the overall financial market, but still important nonetheless. In preparation for more extreme events, the FDIC is finalizing a "claims process to manage large/complex bank failures, including a new automated system to support this process."
The FDIC is also working closely with consumer protection groups to help with the current foreclosure issues facing many Americans. While we as Americans pride ourselves in our education system (for all its faults, it is still very good), our financial literacy is quite low-a statement that can be supported by our low savings rate. The FDIC is working to improve that by finalizing plans to distribute 10,000 booklets addressing financial literacy.
An additional challenge the FDIC is facing is the attrition of its workforce. Nearly 40 percent of the FDIC workforce will be retiring within the next ten years. This will create a large demand for new employees to be trained to take over and manage this critical institution. The FDIC expects to be regarded as an "outstanding employer." It will be looking to secure well-educated people with advanced technical and analytical skills, who can effectively support and carry out the FDIC mission. The plan has many more discussion points, which will be addressed in future articles.
Wendell Brock, PrincipalDe Novo Strategy