GRAND RAPIDS, Mich.—Credit unions are measuring their size the wrong way, according to one person.
Victor Pantea, manager of marketplace alliances at CU*Answers, a credit union service organization here, says the way credit unions measure their size “is one of the primary myths I encounter and would like to see overcome.”
Pantea offered his insights as part of a series in CUToday.info on “Fake News,” in this case, issues and conventional wisdom that are often misunderstood to the detriment of CU decision makers.
In Pantea’s case, he said measuring size by assets on the balance sheet is “an antiquated way” of measurement. A better way is to measure size by “assets under management.”
Balance sheet assets “make money by spread income,” he observed, and as spreads narrow, credit unions can compensate by earning non-interest income.
“We don’t measure those assets in any way, shape or form,” he said.
'Missing an Opportunity'
So, a $1-billion in assets credit union might have another $500 million in brokerage services. To Pantea, that’s a $1.5-billion asset-management credit union. And that’s pretty common.
“I know credit unions manage member assets as much off balance sheet as on,” he said. “I’s a better reflection of earning power and the breadth of what credit unions serve for their members.”
Too many credit unions are not paying attention to assets under management, Pantea added. “They’re missing an opportunity.”
Vic Pantea
He told CUToday.info the average consumer has $7 to $10 in uninsured investment accounts (retirement funds, for instance) for every dollar in deposits. Investment funds such as Schwab or Allstate all compete with credit unions and market their own more traditional services, such as mortgage lending and other deposit products, to credit union members.
Rethinking Mortgage Lending
Another example of this aspect of “fake news,” according to Pantea, has to do with mortgage lending. Many credit unions sell their mortgages to secondary agencies such as Fannie Mae or Freddie Mac, which removes the asset from their balance sheets. Yet, they are earning fees from servicing the loans for Fannie and Freddie, and they are better managing member relationships.
A good idea is to include the member’s mortgage balance on every statement that goes out, regardless of whether the mortgage has been sold, he suggested.
What if a credit union is too small to offer some of these services? That’s what CUSOs are for, Pantea says.
Leveraging CUSO efficiencies, a $5-million credit union can look like a $5 asset CU, according to Pantea. And offering brokerage services through a CUSO can provide opportunities if a member decides to move their investment balance into the credit union.
“You don’t want to say no to him,” he said. “You don’t want him to go down the street.”
What the Evidence Shows
Pantea believes the evidence shows the CUSO business model is succeeding. As proof, he points to the fact that there are fewer and fewer credit unions and more and more CUSOs.
Can that small credit union compete with the Wells Fargo Banks of the world?
“No,” he said. But “I think credit unions should be the dominant provider of retail financial services in the country.”
Pantea added that “credit union service levels meet basic and not so basic needs,” making them a good candidate to lead in retail financial products for consumers and even small businesses.
He acknowledges not everyone in credit unions may agree, but he said it’s the result of setting the bar too low. “We don’t dream very big sometimes.”
—Mark Fogarty