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A View From CUNA Mutual's Jeff Post

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As with all other credit union vendors, credit unions' pain is CUNA Mutual's pain. Without employment recovery credit unions' income will be flat to down according to Post, and so will credit union vendors' income. Credit Union Times Editor-in-Chief Sarah Snell Cooke recently sat down with CUNA Mutual CEO Jeff Post to discuss the near term for the credit union industry and CUNA Mutual's business.

Sarah Snell Cooke: Welcome everybody here at CUNA Mutual's headquarters in Madison, Wis., with CUNA Mutual CEO Jeff Post. Good morning, Jeff.

Jeff Post: Good morning, Sarah.

SSC: Now I want to talk to you about a lot of different things that are occurring in the credit union movement right now. One thing in particular-and this applies to every business-is that we're all in the budget season and planning, and so: what is on the pipeline for CUNA Mutual?

JP: From a budget standpoint, we sure understand it's a tough environment out there. It's a tough environment for credit unions; it's a tough environment for us; it's a tough environment for every financial services company. We believe next year our revenues will be flat to down, so our expenses will also be flat to down. We have a board meeting in November where we'll be sharing our revenue projections, and clearly the amount of top-line change is really going to be dependent on whether or not we see any economic recovery, because so much of our top-line revenue comes out of the member side with our MemberCONNECT products. For consumers to start spending again is really the key variable that we're looking at.

SSC: What do you see as the top accomplishments of CUNA Mutual in the last year?

JP: The fact of the matter is, what we're proud of is we're still here. I mean anybody that came through the '07-'08-'09 timeframe, from a financial services company standpoint, and is still strong, is a real accomplishment. Our capital levels are right around-in some cases even a little bit above-where they were at the beginning of the recession. It sounds a little bit strange, but a lot of our peers aren't here anymore, and I remind my folks that while our results are good, given today's environment, a lot of our customers are still struggling and we need to find new ways to help them generate revenue and keep their expenses down.

SSC: Right. As you mentioned, a lot of your clients are struggling. Part of that is NCUA assessments. How has that affected your business?

JP: As the credit union business goes, so does our business. So the fact of the matter is while we don't get assessed, obviously it has an impact on our business because the healthier our customers are, the healthier our business is. We've been working with CUNA on doing an independent review of the legacy assets that we were asked to do by the large credit union group a while back. So what we are hoping to do is validate for credit unions what the likely losses are out of that portfolio. And again, we're working with CUNA and NCUA to do that. So hopefully, if anything, as it relates to the corporate crisis, we'll at least try to put some certainty in place for credit union CEOs.

SSC: Also, larger than the corporate credit union crisis, yet linked, is the general economy. How do you foresee that shaking out in the next year or two?

JP: I wish I could be optimistic about it, Sarah, to be frank. I'm sure you read the headlines in the paper [recently] that the recession's over but the pain persists. I believe you can't have a jobless recovery. I think we've got to get our hands around employment in this country. A lot of people talk about employment but it can't be underemployment. Just working in underpaying jobs is probably not the answer. I think you need to dig deeper than just the employment numbers. We continue-and I know credit unions especially in the most affected states-continue to be concerned about housing prices, and that doesn't look like it's going to recover anytime soon. In fact, I think some of the noted experts are saying that housing prices could go down for another three years. Bottom line: everything we look at, at best is neutral, maybe neutral to negative, so we actually think there's probably a fairly long road back here.

SSC: And in your business-insurance and investments-how does that play into credit unions being able to maybe make up some of those funds? Where are the cost savings in offering these types of services, as well as the noninterest income opportunities?

JP: From a CUNA Mutual standpoint, we are really about protecting their balance sheets and providing them their own investment products and income opportunities. Probably the greatest opportunity we've seen credit unions taking advantage of is our MemberCONNECT program. I think we have about 40 million members in the MemberCONNECT program. It's a very turnkey program for credit unions. We've been open for longer-term credit union investments for quite a while. We were quiet about it because we didn't want to compete against the corporates, but we had a lot of credit unions come to us and say, "Look, you are long-term investors. Can you help us?" And we've done that. That's another place where, to the extent there's a fair amount of liquidity in a credit union, and they're looking to invest that liquidity for a greater-than-12-month period, that we've added significant dollars to credit unions' income over the last few years. Again, a very tailored program-credit unions choose the amount of risk they want and the duration and we kind of do the rest.

SSC: You mentioned the fallout of the corporate credit unions, and that's had a huge effect on the credit union industry, from a regulatory aspect, income, bottom-line... What scares you most about what is happening as a result of the corporate meltdown?

JP: What scares me the most is the sheer amount of assessments, because obviously 15 basis points a year, approximately, is a huge drain on credit unions' income. The biggest concern I have is just simply the amount of loss within those legacy portfolios. That's my No. 1 concern. I think if I were a credit union CEO, especially a smaller credit union CEO, I would be concerned about processing and the like. Although one of the credit union system's huge strengths is its ability to cooperate-in fact, I talked to Debbie Matz [and] I said, "We're ready to help in any way. We can help." And I think the credit union system will come together and find a solution.

SSC: One of the byproducts of the corporate meltdown is the issue of director indemnification, and the way NCUA has handled the situation with the boards of directors there. Do you think that could have a chilling effect on volunteer boards' willingness to serve?

JP: I think the answer to that is yes. We're trying to work with the NCUA through their opinion time period to try to help them understand the difference between volunteer boards and nonvolunteer boards, while I surely respect the NCUA's desire to ensure that the board members have fiduciary responsibilities.

SSC: The agency has also put out a notice of proposed rulemaking regarding board member education requirements. What do you think should be included in minimum requirements, if at all?

JP: I don't think you need "education requirements" because I think people get educated many different ways throughout their life. I think at a minimum board members should understand financial institutions, should understand what the credit union stands for and how it delivers its products. I sit on a number of different boards, and I will guarantee you that in some of the discussions on those boards, I add very little value, because I don't have the experience in that realm. There are other places where I probably add more value than others, because quite frankly I've had that experience. So I think to necessarily put down a list of ten items and say you've got to check the box of all ten to be a board member kind of misses the point.

SSC: I think that diversification is good in any way you can achieve it on the board, and one of the big topics of conversation among credit unions is recruiting younger directors for credit unions, as well as younger employees and younger members. What is credit unions' big "in" to that Gen Y focus, and how are they achieving it, and are they doing all they can to accomplish that?

JP: Should the Gen Y be on the board, or should the Gen Y be in a marketing department? Again, part of being on a board is lifetime experiences, and you can accomplish it many different ways to get access to those Gen Y folks. They don't need to be board members. They could be if they have the requisite experience, but just being Gen Y isn't enough of a reason to put somebody on a board.

SSC: At the other end of the spectrum, for the boomers, it seems there is a huge opportunity there for credit unions with transfer of wealth as the parents of the boomers are aging, as well as great lending opportunities with their Gen Y children or Gen X children. What are your thoughts on how credit unions can attract more of this market as well?

JP: I agree with you it's a great opportunity. The question is how do you get at the opportunity. You are at an interesting point in time where the faith in the traditional large financial institutions in this country is at an all-time low. So what better time to take advantage of it? I surely visit credit unions every year that have a very robust broker-dealer and are very good at getting assets to invest for members. What I've seen as I've gone out and visited those credit unions and those CEOs is there's not one key to success. But it's like any other business within the credit union-you've got to invest in it, you've got to have the right people in place, and you eventually build the expertise and the view from your members that you are in fact a trusted adviser.

SSC: And I would think the grassroots feel of the credit union industry would resonate well with those boomers who grew up in the '60s and '70s.

JP: And I think it resonates even better today.

SSC: Thank you very much for your time, Jeff. I appreciate it.

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