Category: Co-ops in Capitalism

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2023: Credit Union’s Opportunity to Reconnect with their Most “Essential” Members

When the economy shut down in March of 2020 due to Covid, many office workers went home.  Hybrid and remote work options were developed.  However essential workers stayed on the job:  the trash haulers, public transportation, police, fire, hospital, construction  workers.  These blue collar and middle class service workers make community life possible for the rest of us.

Today the key economic question is will there be a recession?  For hundreds of thousands of white collar workers in the technology, finance and venture capital startups the layoffs are here.

Goldman Sachs, Pepsi, Gannet, CNN, Door Dash, Carvana, Roku, Amazon and dozens of other previously industry high flyers are in the first rounds of layoffs.

The dominance of the four FANG (Facebook, Apple, Netflix, Google) and their stock market performance has fallen back to the mean of the rest of the market over the past five years.

The bankruptcies of the crypto, NFT industry and its offshoots have cost investors over $2 trillion in losses with more to come.

However in almost every other part of the economy, especially the service sectors, there are millions of unfilled jobs.  Wages are rising from both employer demand and more aggressive employee actions.

The Well Off and Essential Labor

America’s experience with capitalism has often been characterized as a society where the successful, the wealthy, the better educated have dominated their poorer classes.  Here is an excerpt from a Heather Cox Richardson description of why Lincoln strongly supported universal education:

But when they organized in the 1850s to push back against the efforts of elite enslavers like Hammond to take over the national government, members of the fledgling Republican Party recognized the importance of education. In 1859, Illinois lawyer Abraham Lincoln explained that those who adhered to the “mud-sill” theory “assumed that labor and education are incompatible; and any practical combination of them impossible…. According to that theory, the education of laborers, is not only useless, but pernicious, and dangerous.”

Lincoln argued that workers were not simply drudges but rather were the heart of the economy. “The prudent, penniless beginner in the world, labors for wages awhile, saves a surplus with which to buy tools or land, for himself; then labors on his own account another while, and at length hires another new beginner to help him.” He tied the political vision of the Framers to this economic vision. In order to prosper, he argued, men needed “book-learning,” and he called for universal education.  

Congress passed the Morrill Land Grant College Act in 1862 to focus on the teaching of practical agriculture, science, military science, and engineering—although “without excluding other scientific and classical studies”—as a response to the industrial revolution and changing social class.

The Question Today: Do Rich People Know?

Gian Carlo Menotti’s opera Amahl and the Night visitors tells of the night the Three Kings, following the star to Bethlehem, stop for shelter at the home of Amahl, a poor, crippled shepherd boy who lives with his widowed mother.  The opera was first performed in 1951 and regularly at Christmas since.

The climactic scene occurs as the three kings sleep. The mother consider if she dare take a piece  of gold from  the king’s treasure chest. She debates the rightness of her action:

MOTHER (thinking to herself) All that gold! All that gold! I wonder if rich people know what to do with their gold? Do they know how a child could be fed? Do rich people know? Do they know that a house can be kept warm all day with burning logs? Do rich people know? Do they know how to roast sweet corn on the fire? Do they know do they know how to fill a courtyard with doves? Do they know… do they know? Do they know how to milk a clover fed goat? Do they know? Do they know how to spice hot wine on cold winter nights? Do they know… do they know? All that gold… all that gold! Oh what I could do for my child with that gold! Why should it all go to a child they don’t even know? They are asleep. Do I dare? If I take some, they’ll never miss it… (moving towards the boxes of gold…) …for my child for my child… for my child… for my child…

2023: the Year of the “Essential Member”

Credit union’s purpose was to address those in society who have the least or know he least when seeking financial services, especially credit.

The cooperative model proved that consumers are indeed a market that all financial institutions can profitably serve.  Today financing options for consumers are available for those with no or damaged credit to the elite credit cards made of titanium, not mere plastic, for the most well off.

Since deregulation the credit union system has grown, attracted tens of millions of new members and provided ever expanding institutional and professional opportunities for coop leaders.

Some coop executives see their opportunities in buying banks or scooping up their smaller brethren.  Senior executive coop compensation routinely rewards in the mid six figures.  For the best well-paid leaders, annual compensation comes with two commas.

The challenge for coop leaders will be the question asked by the widow in Amahl:  I wonder if rich people know what to do with their gold?

Have leaders so aspired to emulate their banking counterparts that the essential members whose loyalty created the institutions they lead has been forgotten?

Yes, the white collar tech, financial and previously high flying company employees now being brought back to earth by rising interest rates, will need our help as well.

But let’s never forget those who brought us to where we are today-a $2.3 trillion tax exempt financial force with a special role in society.  This institutional success has enabled many coop managers and boards to become members of the white collar class.

Do they know that America’s essential workforce may indeed be the greatest opportunity for credit unions in this pivotal year of economic and market realignments.

 

 

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Are Members Losing the Cooperative “Savings” Game?

While the 2022 calendar has turned, we do not yet know the full results for the credit union system.  And how member returns may have ended up.

The number one economic topic in 2022 was inflation.  In response the Fed raised short term rates from 0-.25& to 4.25-4.50% in seven steps.   The rest of the yield curve rose although not  always in a parallel fashion. In some time periods,  the yield curve has inverted meaning short term returns exceed longer maturities.

Credit unions fund on the short end of the curve. Liquidity was, and still is, a top credit union priority.   At September 30, annual loan growth was 19.4% versus share growth of  just  6.5%.  Unrealized investment losses had grown to $40 billion, Total investments had fallen by over $100 billion.  FHLB borrowings were double the amount versus a year earlier.

So how did credit union member owners fare overall in this rising rate environment?  For the entire industry the year-to-date results through September show loan yields have risen, cost of funds has fallen by 2 basis points, and the net interest margin has increased by almost 20 basis points.  Rising loan demand was the primary reason for this margin increase.

The Top 100 Report a $51 Million  Decline in Dividends Paid

A commonly accepted truism in credit unions is that the larger the credit union, the greater the possible member value.

In 2022 Vanguard’s federal money market fund had a total return 1.55% rising from .01% in Q 1 to a 3.99% distribution at December 31, 2022.   These savers returns rose as did market rates.

For members of the top 100 credit unions there was a very different outcome.  In 63 of the largest credit unions the total dividend dollars fell by an average of 12%.  The total decline was $241.7 million versus the amount paid in the first three quarters of 2021.  For some the fall in rate was precipitous.  One credit union reduced total dividends by 46.3%; three credit unions reduced their dividends by over 30% versus the year earlier.

In contrast, thirty seven of the top 100 reported an average 21.7% increase in paid dividends.  One caveat: approximately seven of these increases were due to mergers or bank purchases which increased total shares by this externally acquired growth.  Their dividend payments may not be an apples-to-apples comparison.   However, ten credit unions in this group, all with only organic growth, reported over 20% increases in dividend payments.

When adding up the total dividends paid by the 100 largest credit unions through September, the combined result is a $51.2 million decline in member income on their savings.

The proviso:   The game is still has one quarter to go.  Some credit unions pay significant yearend bonus dividends and /or interest rebates.  These will need to be added in the final quarter.  With full year data we can also estimate the average dividend rates to compare with  alternatives during the year.

The Existential Question for Credit Unions

In the first three quarters of 2022, members are paying more for loans, credit unions are earning higher investment returns, salaries and benefits continue to grow, and total capital has  increased. However, many members are seeing a reduction in the dollars paid on their savings.

I will revisit these top 100 to see the full game’s results at December 31.  Did member-owners win or lose in this rising rate environment? Which credit unions navigated this rate transition most effectively for their savers? How did they do it?

Will members continue to “subsidize” the largest coops, many with increasingly public visibility, by accepting falling returns on savings? One money market fund today pays 4.25% (seven day SEC yield) with an expense ratio of only .10 basis points.  Will large shareholders start to move funds from their lower paying credit union money market products?

CEO’s frequently assert that member loyalty lasts for only 25 basis points.  The US economy has had historically low rates since 2009.  Lower inflation and the Fed’s “quantitative easing” have led to an unusual financial period where the cost of money was at or near zero.  Can credit unions avoid the “bubbles” created by this historically rare very low-rate environment?

Will CEO’s adjust their business models so that member savers can be winners in 2023?   So far the data show there is a significant gap  for coop owners to receive the results they will increasingly expect versus other options.

In 2023 will the largest 100 turn into leaders, or the majority continue as laggards in savings returns?

If many of these largest firms cannot remain competitive for savers, is the cooperative financial model at risk?

Or do these falling returns, just reflect management slowness in responding to the changed interest rate situation?

 

 

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A College Student’s First Credit Card

By Marit Hoyem

I am a junior at Williams College with a concentrations in communications and volleyball. Last summer I was an intern at Callahan & Associates, the credit union company.  One assignment was writing articles about the financial habits of my generation. Their needs, how they get information, and how credit unions can attract Gen Z by helping them be more confident about their finances, especially using credit.

My reporting  last summer taught me a lot. But then, I became a case study.

The Need for Credit

My search for a credit card began two weeks ago when I arrived home from college for Winter Break. I am spending the next semester abroad in Edinburgh, Scotland.  This change of location means that I won’t have a meal plan and other college expenses included automatically in the tuition payment.

To support this new far-from-home experience, I needed a credit card to transact easily in the local economy.  I wanted to start building my credit before I left the U.S.  to learn what living outside the Williams college prepaid “financial bubble” would require.

Looking for Options

First  I talked to my Mom and sister.  Both have several credit cards. We are all members of the same credit union. They encouraged me to look at our credit union as well as seek other options. What kind of benefits did banks target for college students?

I started researching online looking for the best rated credit cards for students, credit cards for people with no credit, and credit cards without foreign fees. The options were overwhelming.

When I decided to try an option, the application was pretty intimidating.  I didn’t have much of a job history other than summer internships and part-time campus work, and no outstanding credit.  I also felt uneasy getting a card from a bank or fintech with which I had no first-hand experience. How would they know I was reliable? Was there a catch in their offer?

I decided to ask for a card from my credit union where I had been a member since high school.

An option on my credit union’s website met my criteria:  no foreign transaction fees, no annual fee, and a high enough credit limit.  I set up an appointment with someone in the lending department where I could present my case. I believed that explaining my income, my semester abroad, and the need for the card now would be more effective in person.

The credit union offered a secured card backed with my savings deposit. I had to show my last “part-time” pay stub from school, which the loan officer used to determine my limit — needless to say it was not very high.

During my online searches, I found a card through Deserve and American Express. The program  is meant to help students build credit. What stood out is that Deserve has multiple cards designed for specific activities such as entertainment, women-owned business, or student loans.  The application online asked similar questions to my credit union, which made the process familiar. Within a week I heard back approved — with a much higher card limit than my credit union’s offer, and not limited by my monthly income.  The card should arrive  shortly.

Seeking Credit the First Time

This experience showed the benefit of getting a credit card at a young age. Seeking credit for the first time can be super intimidating.  However the sooner I start building credit and pay bills monthly,  the more comfortable I will be will using credit when necessary.

As a credit union member, it was easy to go in person and be approved because we knew each other. But that isn’t possible for many students who do not go home or have no credit union  nearby.

Most of my peers are likely to pursue their first card online.  To gain their business,  the institution  should  be able to walk with the novice student borrower through the process.

 

 

 

 

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Unions in Credit Unions

Labor unions have traditionally been seen as part of America’s older manufacturing  plants or where there are high concentrations of workers.  Autos, heavy equipment, steel, telecommunications, and transportation are industries where unions have been an key aspect of the workforce since WW II.

Gradually union efforts expanded to teachers, fire and police, and at the local state and national levels for public employees.   NCUA staff was unionized in  2013 under Chairman Matz.

Organizing has extended to NFL, baseball and virtually all player’s associations in professional sports. Graduate student staff at California’s state university system went on strike last fall.

The last two years have seen increasing efforts by employees to from unions, especially in the retail sectors.  The warehouse organizing at Amazon and Starbuck store-by-store votes, have been regular business news in 2022.

Hybrid work options and prospects of increased layoffs have led to organizing efforts in the heretofore non-unionized tech industry, including a small part of Microsoft’s empire.

Local circumstances as well as macro-economic factors have driven this effort.  Inflation has caused employees to be more aggressive in seeking higher wages.

There are more job openings than people job hunting. Yesterday’s monthly JOLT (job openings and labor turnover report)  showed 10.5 million openings, a level that has remained steady for more than a year.

Unions and Retail Services

One author has suggested that Starbuck’s unionization has been motivated by employee response to the firm’s modified corporate strategy.

This corporate transformation was necessitated by Covid driven changes in consumer commuting patterns and work place locations. Starbucks had positioned itself as the “third place” between home and office for people to gather.

Today the business model relies on transaction volume driven partly by a mobile app and instant pickup with fewer employees to keep costs down.

He describes the impact of this strategy shift in The Future of Retail is Happening at Starbucks Right Now. 

“The number of store employees has dropped dramatically.  Starbucks had 349,000 employees in 2020, which includes the period pre-pandemic, and 138,000 in 2021, but coffee is still flowing.

“Like any retailer, Starbucks needs people to do some work. Perhaps there are steps of the customer experience that could be replaced with software, but not all of it. If Starbucks is going to be successful with a reduced staff, it needs employees who know the stores, their customers, and operations.

“This is why many stores are fighting to unionize. Employees are demanding livable wages, dependable hours, and benefits. And it’s not like Starbucks is hurting. Store count and profits are up, while the company-wide payroll has fewer people. Yet the employees who still show up are struggling to get hours and benefits.”

A Top Ten Item

A Credit Union Times article by Henry Meier former General Counsel of the New York Credit Union Association, listed union organizing as one of the top ten trends to watch in 2023:

From Amazon to Starbucks, last year marked a movement toward unionization: Why would credit unions be exempt from this trend? This means that someone in your credit union should be familiar with the steps you can and should take in the event that your senior management receives notice of intent to form a union. This is an area of the law where a single misguided statement can result in loads of trouble.

This law firm’s new advertorial cited two cases of union organizing in a bank and coop in 2021: Big Labor Targets Banks and Credit Unions.

They point out these successes were in “union friendly” states at a time when there is more active NLRB support for organizing,

Credit Unions and Unions

A number of credit unions have had employee labor unions, some their entire existence.  717 Credit Union in Ohio was formed by a GM labor union.  Teachers,  police and fire credit unions in several states were formed by their professional associations.

Once in a while employees have ended their union affiliation. When a new relationship focused CEO came to State Employees in Michigan,  the employees disaffiliated some 15 years ago.

Both external economic conditions  and institutional strategy change–major mergers and bank purchases–are causing credit union employees to consider how to negotiate their future work opportunities in significantly altered environments.

In October employees at a Broadview FCU branch in Albany, NY announced their intent to form a union.  This occurred just months after the former State Employees FCU and Cap Comm CU had merged.

In the Times Union article,  the employees invoked both credit union design as well as traditional work concerns in these excerpts:

“Credit unions are a form of economic democracy where every member has equal ownership and one vote. We have concluded that a labor union is necessary in order to provide Broadview members — our financial institution’s owners — with high quality banking services,” reads the letter. “We are organizing due to inadequate pay and benefits, constantly changing schedules, understaffing which overwhelms us, and a lack of equality and a voice in our workplace.”

The article continues:

“The union letter was from member service associates and relationship bankers at SEFCU’s Park South branch on New Scotland Avenue in Albany. It wasn’t clear if the organizers, calling themselves, the Broadview Labor Organizing Committee, were affiliated with or had reached out to other regional or national unions.”

Credit Unions, Culture and Employee Unions

Many credit unions compete through superior personal service.  Employees are front and center of this effort.  Management constantly  nurtures this advantage through training and transparency.

If changes are undertaken and employees learn about their  new  priorities only as senior management announces them, a loss of agency can occur.   Why weren’t we asked?  How will this bank purchase affect our staffing?  What will happen to all the co-employee positions in a combinaton of sound, previously independent credit unions?

Unions and credit unions may increasingly go together.  After all, aren’t coops basically a member-organized union?

The best way to follow what  credit union employees are thinking is fully and regularly sharing  what management is thinking.

 

 

 

 

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REAL Credit Union Stories

The stories we tell create our history.  They capture what is valued and honored.  They portray want we want to remember as individuals,  within an organization, or for a movement.

No two stories are identical for persons or firms.  Added together they are a kaleidoscope of what  credit unions have become and likely paths to the future.

Blogging is storytelling.  Today’s examples are from Day Air in Dayton, Ohio. They were selected by the CEO in his monthly update to  his team. The examples illustrate the credit union’s singular culture.

Using Stories

The CEO’s introduction: There were 25 service story nominations in December, bringing the total for the year to 232, just shy of the record set in 2021.  Please keep your eyes open to good news stories happening around the Credit Union – there are a lot of them….  Help us share those stories in 2023.

The Service Example

Palisha was commended five times this month by various members or associates. One of those comments included: “Palisha was very helpful and explained everything very well. She also gave me tips to help build my credit which I found out I was doing all wrong thanks to her.”

Partnering in the Community

We partner with various non-profits in the community.  One is the Artemis Center, which assists victims of domestic violence.  Their executive director sent this letter last week: 

“My name is <redacted> and I am an active participant in Artemis support group.

I was never involved in the finances in my almost 25 year marriage. I knew nothing about loans, money, mortgages or credit. My credit had been destroyed during my divorce. 

An advocate at Artemis referred me to Day Air. Not only did they (Day Air) take the time to help and explain to me what I needed to do with my finances but how to achieve them. For someone that was significantly financially abused for years, the help from Day Air has made a huge difference and impact in my life. 

As a single mom I am almost to the place where I am going to be able to get a home mortgage but would not be at this place if it was not for the referral to Day Air.

For people that have been significantly affected by Domestic Violence, this is such a huge relief to have businesses that are willing to help others in this situation. I just needed someone to give me a chance and guide me in the process of becoming independent. This will enable me to provide for myself and my children.

Thank you so much for partnering with organizations and businesses such as Day Air Credit Union.”    

Another Partnership: Trinity Success Story

We typically see success stories from Trinity Credit Management that result from associate’s referrals of members.  The following was the result of a member finding Trinity through our website.

“this was an outstanding outcome……$31,300.00 on 4 credit cards……26.1% interest we reduced to 7.2%……original monthly payment $1,112.28 (only $324.00 was applied to principal!!!!)….new payment down to $854.00 and this couple is on track to being paid in full at least 15 months sooner saving about $20,000.00…….”

This organization does great things negotiating on member’s behalf to reduce credit card debt.

The CEO’s Message

Mutually owned financial cooperatives and CDFIs (and Day Air Credit Union is both) play a tremendous role in the economic vitality of communities around the world.  The impact is measured in the number of loans made and number of people served, but also in many other, intangible ways. 

A mortgage or home improvement loan helps improve the quality of housing and can bring stability to a community.  A car loan or a car repair loan can be the difference in a single parent being able to get to work or take children to daycare or school.

A personal loan can help people avoid predatory payday lenders.  A small business loan can create job opportunities that improves the standard of living of the business owner, the small company’s employees as well as benefit its patrons. 

All of us at Day Air Credit Union represent the “George Bailey” (from the movie It’s a Wonderful Life)  in the lives of those who we help and serve.  Thank you for being part of someone bigger than each of us; a part of something that greatly contributes to the very fabric of our community; a part of something that really makes a difference in people’s lives. 

REAL Stories

These are REAL credit union stories to lead us into the New Year.   Daily we will read numerous reports and publicity about many cooperative’s milestones, and even sometimes, endgames.

The critical factor for each reader will be to discern for him/herself what is a REAL credit union accomplishment, or merely an event touted by “a credit union in name only.”

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AI Vs. the Author’s Joy

Randy Karnes served as CEO of CU*Answers and its multiple offspring in four decades.   He led during multiple technology revolutions.

He posted these comments on the role of AI and machine learning in general, responding to yesterday’s blog written by Playground.

AI and the Author-Artist’s Return on Work

Automation will be able to replace the delivery of such things by emulating the output from stored themes, patterned phrases, and just like students of millions of expressions of facts AI will simply string output together – a modern day scribe, typist, or plagiarist.

But while the output of work product for the economic return on work – the real return is for the author’s joy – the pride in the intellect on display – the heart in the translations of life’s learning and ideas interpreted. AI is a long way from capturing personal returns on being the owner of the work.

It will still be to the artist to generate the  moment of insight that sparks a genuine response amongst the noise of billions of expressions generated by endless data, tireless machines, and endless networks.

For all the noise it is the simplest of silence inspired thoughts–for thought that lights the soul on fire.

The Challenge for Today’s Technology Managers

But I am not sure many consumers today love the work to be the authors or manufacturers of value beyond telling machines to pump it out.

When you considered that my career changed from tech that readied the day for humans to interact around financial service delivery to one that where no humans are needed for 80-90% of the transactions or advice, you can see that less and less value generators or authors of ideas are needed.

Thinkers and dreamers no longer need apply.

Financial Tech was an exciting space of invention, creation, and innovation but more and more it is becoming simply a world of operation, maintenance, and tweaks.

Human workers are simply the lubricant of established systems today and mesmerized to overvalue the tech to be consumed and their role in supporting it – inflated on both sides of the artificial templated transactions.

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Is Santa Real? The Most Famous Letter to an Editor

Yes, Virginia, there is a Santa Claus” is a line from an editorial by Francis Pharcellus Church in the New York newspaper The Sun on September 21, 1897.

The exchange became so well know that The Sun  republished it during the Christmas season every year until 1950, when the paper ceased publication.  The writer’s  response outlives the event and his paper.

Is there a message beyond this recurring seasonal query?

Here is the letter:

September 21, 1897

Dear Editor, I am 8 years old.

Some of my little friends say there is no Santa Claus.

Papa says, “If you see it in The Sun, it’s so.”

Please tell me the truth, is there a Santa Claus?

Virginia O’Hanlon

The Editor’s Reply Excerpted ( The full letter can be read here)

Virginia, your little friends are wrong. They have been affected by the skepticism of a skeptical age. . .

Yes, Virginia, there is a Santa Claus. He exists as certainly as love and generosity and devotion exist, and you know that they abound and give to your life its highest beauty and joy. . .

Nobody sees Santa Claus, but that is no sign that there is no Santa Claus. The most real things in the world are those that neither children nor men can see.  . .

Only faith, fancy, poetry, love, romance can push aside that curtain and view and picture the supernal beauty and glory beyond. Is it all real? Ah, Virginia, in all this world there is nothing else real and abiding. . .

A thousand years from now, Virginia, nay 10 times 10 thousand years from now, he will continue to make glad the heart of childhood.

Are Credit Unions for Real?

At a point every movement founded on goodwill will have sceptics.  Even credit unions.

Some today see the cooperative credit union model as only nostalgia.  Similar to listening to sports on radio, two-a-day newspapers, and created in an era when congregations were standing room only on Christmas eve.

Those times are gone.  Today the future for cooperatives is to match their bigger, stronger and more influential competitors.

These sceptics put their faith in numbers, the higher the better.  The idea that members should share in the first fruits of their collective effort is seen as naive in a competitive market.

Whether large or small, the founders’ belief that credit unions  should serve the well-being of all-even those who have the least or know the least about finances-is passe.  Especially when AI based lending can do it all–faster, cheaper, and more fair.

The Most Real Thing

The editor’s response describes a different reality.

Members’ faith and loyalty create trust, the foundation of any sustainable relationship-whether commercial or personal.  Credit unions empower with service that “makes glad the heart.”

Uplifting peoples’ and communities lives can be “the highest beauty and joy.“ This purpose  ignited tens of thousands of founders, differentiates still  and will be  relevant “a thousand years from now.”

Santa’s commercialization and consumerism is just one side of the story.  It invokes an image  to put a shiny veneer on profit making.

The editor’s letter  presents why this character’s symbol continues to fascinate children of all ages.

And that same understanding is what will make credit unions, at their best, a “real and abiding” movement for future generations.

 

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The Power of Traditions: Balancing the Old and New

Holidays remind us of past practices, events and stories that have made us who we are as individuals and a country.

But they can be confusing.  For some may view these breaks from the working calendar as simply nostalgia, irrelevant to the present, without  the correct lessons to carry us into the future.

Traditions are hard to maintain. That’s why holidays can help. People and cultures change. The song Tradition from Fiddler on the Roof presents this challenge “keeping balance” between past and present mores within a family and in society.

Credit unions were constructed around tradition.  The founding stories tell of the sponsor group of employees, in a community,  or with members of church drawing  upon their existing “common bond” to create a novel way to improve their collective lives.  In the process they evolve their separate institution, forming a culture of service and a reputation of trust.  They develop their own traditions.

Holidays Recall Stories that Matter

The current holiday season is always special. We rewatch movies that capture the Christmas spirit.  The Inn on 34th Street, Holiday Inn (introducing the song White Christmas), the movie White Christmas, and Frank Capra’s classic, It’s a Wonderful Life have a staying power sometimes missing in contemporary Hallmark channel versions.

Whatever a film’s lasting  artistic expression  they all still share the same human story of redemption.

Literature classes in school recite Twas the night before Christmas, or Christina Rosettee’s poem in The Bleak Midwinter (set to music and now widely sung anthem by Gustaf Holst), or other works such as Ring Out Wild Bells from Tennyson and Old Christmas by Washington Irving.

Dickens story of Scrooge is staged again in cities large and small throughout the US. Its themes of personal hardship and insensitive wealth accumulation still speak to us.

Christian religious services begin with Advent.  These four consecutive Sundays’ candle lightings celebrate love, hope, joy and light all in preparation for Christmas day.

Commerce rebounds. It starts with Black Friday. Retailers from department stores to car dealers all offer specials to draw in consumers. The holiday is filled with special sales offers.  Giving Tuesday reminds that life is more than just getting.

The Power of Traditions

The faiths celebrated at Christmas and Hannukah from which these literary and secular manifestations emerge, are stories of ancestors defining their beliefs in actions that inspire current generations.

These faith practices and commercial activities create traditions repeated over  generations. From the lighting of the National Christmas tree to attending midnight mass, people remember.  Whatever their circumstances they  honor the values, spirit and sacrifices that are meaningful in their lives now.

These holiday traditions, sometimes with public parades and spectacles, reinforce meaning and renew hope. Or they  can become a neglected past unrelated to current purpose.

Credit Unions Coping with Traditions

The story of who the credit union is, is communicated by its culture and in the marketplace via a brand.  The founding story is summarized on web sites showing the pioneers who began with no capital, only a desk drawer with founder’s shares, and the desire to serve members with loans.

Every organization must  innovate and move away from prior practices to refresh or sometimes “start over” to remain relevant.  New churches are founded outside current denominational structures to offer a different expression of faith practice, or recover what some feel is a faith lost.   In movies this commercial effort is called a sequel.   Even Scrooge’s stage story has been adapted to 21st century business settings with contemporary casting.

When Traditions Are Discarded

Both religious practice and commercial organizations must grapple with the reality of remaining relevant and potentially losing the power of their story.

Credit unions compete in open markets.  No more protected FOM’s. Members change, so do their needs.  Markets go through cycles.

In most coops the majority of funds are held by older generations, long standing members, many of whom do not borrow.   Management seeks new members often with no previous connection to the credit union and its distinction versus other financial options.  Just another consumer choice, perhaps attracted by price.

Examples are “indirect” lending for autos, student loans, and commercial participations where the business borrower may not even be in the credit union’s geographic market.  No local advantage needed,  just price.

Sometimes this balance of change and tradition is political.  Some wish to conserve the best of the past versus progressives who believe that success was built on limits and concepts that no longer reflect current needs and market realities.

Choices and Beliefs

There is still one commonality whatever the balance between past and present circumstance. The choices each of us make in our professional or personal lives express our values, the beliefs we hold about life’s purpose.

Whether religious, commercial or just lifestyle driven, traditions are efforts to connect within oneself and externally, with others, through shared experience.

Whatever business strategy or “innovations” are introduced, and prior efforts ended, the results are presented as the new rituals for success.

The biggest error is erasing past connections.  It is becoming more common today upon merger or the launch of a market expansion effort to rebrand and to reject past names, associations, and even partnerships in the search for growth.

To dismiss the past as no longer relevant to present circumstance negates shared purpose. Past experience no longer lights the future.  It is stepping off a cliff not knowing how far down is; or taking Christ out of mas.  This may appear a necessary and innovative relaunch for future success; but more likely not. Without a past, there can be no future.

Rebuking tradition without principles is a dead end. For values are the core of cooperative design. With no past, the future becomes a shot in the dark. Survival becomes nothing more than a financial contest attempting just to stay up with overall trends.

Washington Irving’s Old Christmas stories from 1876 remind us of the binding power of tradition.

“Of all the old festivals,” Irving wrote, “that of Christmas awakens the strongest and most heartfelt associations. There is a tone of solemn and sacred feeling that blends with our conviviality and lifts the spirit to a state of hallowed and elevated enjoyment.”

This “solemn and sacred tone” is accessible all year round to those who respect the legacy of  prior generations that established their current opportunities.

It also adds to  life’s enjoyment.

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The VSE Merger:  Will “Potters” Take Over the Credit Union Movement?

In the It’s a Wonderful Life movie classic, George Bailey is granted his wish and gets to see what life would’ve been like had he never been born. He’s shocked by the results.

There was no one to fight for market competition, equality, opportunity and ownership for the working poor and middle class.  Bedford Falls is renamed Pottersville.

Pottersville is packed with bars, strip clubs, casinos, and pawn shops. It’s full of cops and traffic and lights and noise and strangers. It’s filled with colder, harder people, with more violence, gambling, mental illness, debt, and rampant consumerism.

As George Bailey stated:

“Just remember this, Mr. Potter: That this rabble you’re talking about, they do most of the working and paying and living and dying in this community.” 

The Vermont Members’ Perspective

Yesterday’s post presented a long-standing loyal member’s critique of the Vermont State Employees (VSE) merger with New England FCU (NEFCU).  His objections included:

  • Merging two competitors eliminates the choice of credit union services for both members and the Vermont public. Together they will hold 42% of the credit union market.
  • The cancellation of the VSE’s state charter eliminates its community FOM open to anyone living or working in Vermont, as well as unique state authorities such as equity investments in other coops. The FCU charter is a multi-common bond composed of multiple SEGS and associations, governed by federal law and regulation.
  • The members receive nothing, no bonus dividends or payouts, from their common wealth of over $100 million. Their patronage created this equity.  It is now transferred to the total control of a new board to use solely as they wish.
  • The names say it all about the marketplace priority of each organization. “Vermont State” signals a focused business model, featuring environmental initiatives, creative partnerships and cooperative culture described in the September 2021 Callahan Quarterly Report. The name “New England,” formerly IBM employees, now includes groups in 4 Michigan counties, related Blue Cross Blue shield organizations throughout the state, as well as groups in ME, MASS, RI and CA.
  • The Notice of merger provides no specific benefits, services or value not currently within in the capability of the VSE to do by itself.
  • The future political leadership of the members’ $1.1 billion is in the control of  six NEFCU directors versus only five from VSECU. All VSECU directors, but only three NEFCU, will be up for election by members in 2023.
  • The average salary in VSE’s home office, Montpelier, is $46,000 and at the 90th percentile is $84,000. The 190 VSECU staff’s average as of September 2022 was $101,000. Independent professional careers are now “co-employees” until redundancies begin after the operational conversions are complete.
  • The transaction has no financial or market-based rationale.  Had members been bank shareholders, their book value and historical performance would have warranted a payout of $150 million or more to the owners. Instead the entire franchise is transferred free to another organization.  It makes no sense.

The Motive for the Merger

How did this idea of merging two “financially strong” credit unions arise?   In a  May 2016 interview with VT Digger,  Rob Miller talks of his “learnings” after being hired to the VSE CEO position, his first job in credit  unions:

“I thought it would be boring, frankly, to work at a bank,” he said.

Then he learned about the organization’s mission, that it was a not-for-profit financial cooperative, and that anyone in Vermont could be a member.

“VSECU’s mission – to improve the lives of Vermonters – that really spoke to me.” 

“I suddenly saw an organization that had the capacity and the resources to really fulfill its mission,” he said.

His background isn’t one that typically leads to the position like he now holds, he admits.

“My first day as CEO was my first day working at a credit union. That was a big step for the board to hire outside of the industry.”

He lights up when he talks about VSECU’s latest initiative, to offer equity financing to cooperatives in Vermont, which typically only have access to debt financing. (not an FCU option)

“Coops are an important part of any regional economic development strategy,” he said. “They are locally owned, and the owners are the customers – it’s a business model that is inherently more sustainable,” he said. “It’s like paying yourself. That’s a natural incentive for success.”

“At our core, we are a cooperative. We embody people coming together to help one another,” he said.

These sentiments are certainly proper.  In light of his merger initiative, the remarks suggest that human nature cannot always be nurtured.

In contrast, the CEO of NEFCU has held the top position since 1987 (almost 36 years) and will continue in that role after merger.  Miller, as CEO of VSECU arrived in 2014, inheriting 65 years of members’ loyalty, resources and institutional success.  He will be President and COO of the newly combined operations.

Here is a 1.34 minute video of the two men talking about this “partnership” and why a new name is important to “building a new organization.”

It is easy to understand how the two CEO’s developed the transaction between themselves, and then sold it their boards and staff.  Their motivations are straight forward. It was a succession plan and capstone for the CEO nearing retirement.  For VSE’s Miller it was a personal opportunity  to take over a firm almost three times the size of his current job.   A win for both, at the members’ expense.

No one would want stop a CEO from moving to a new job at a larger credit union.  Happens all the time.  But in this case the circumstance of the CEO bringing his  credit union with him to this new job  is highly unusual.

In the video the two men talk smoothly about “building a new organization” of 500 people.  This necessitates a new name since the legacy of the old ones would hinder this process. This marketing video was part of the sales campaign.  All members need to do is just vote their approval.

If you believe this “new organization” is built on the movement’s uniqueness, listen for the number of times the words cooperative or credit union are used.  Or how this merger helps members.   Zero. There are no beliefs like those used in Miller’s  Digger awakening interview above.

This short video is professionally staged, in a garden-like setting, background theme music, the casual dress and coffee cups on the table creating an impression of shared camaraderie.  It is all  part of the grift.

Skating on Thin Ice

A transaction so shallow suggests this merger of these previously sound credit unions may not be as straight forward as presented.  Without a carefully considered roadmap, all the hard issues have been kicked down the road.

Here are several reasons why this merger, like many, may end up reducing, not enhancing member value.

  1. 49% of the members who voted opposed the plan. Only 316 votes separated the yeas from those opposed out of a membership of over 71,000. No firm would proceed with an effort in which half of the “customers” who use the service, openly oppose the proposed changes.  It shows a management and board with their minds made up, blind to how members believe in their credit union.
  2. The economy is reversing the tidal wave of deposits from the Covid era. It is now in a new cycle of rapidly rising rates, increasing consumer uncertainty, lower liquidity, and the prospect of recession. Whether it is the distraction of the merger effort or just market forces, both credit unions are under-performing their historical trends.

In September VSE reported $25.3 million in borrowings as 12-month share growth fell to just 1.8%.  Even with a $20 million increase in shares, the credit union’s dollar dividends to members fell 28% from the prior year. Members are paying the price for this underperformance.  The credit union reduced its average cost of funds to  just 16 basis points, even though short term rates have risen to almost 4%.  The unrealized loss on the $136 million of investments went from nil to $25 million over the past year.

  1. The reason for merger in the member Notice “facing. . . the challenges of an aging Vermont population and slow to no growth” does not mean there is no more market opportunity. In fact credit unions lost 3% points ($180 million) in Vermont’s deposit market share to banks to fall to 22% as of June 30, 2022. In mortgage lending credit unions held a 24% share of the $6.2 billion total of HMDA reported loans closed in VT.

Prospects are so poor in Vermont that the plan is to take members deposits and earnings and invest those out of state.  A sure fire way to retain Vermonters loyalty!

  1. There will be hundreds of thousands of dollars in new merger related costs for conversions, vendor contract cancellations and benefit plan payments. Then additional expenses to create a brand identity for the “new organization” requiring extraordinary market promotion efforts, again at members expense.   The legacy goodwill and existing reputation values are forfeited.
  2.  Members will see through the thin façade of explanations and vote again-with their money. Why support a new organization with no track record of accomplishment and that destroyed the contributions they made to building their prior credit unions?

Throwing members under the bus to support an undefined merger plan is not a sustainable strategy.

Will the Potters of the World Win?

It’s a Wonderful Life portrays the eternal conflict in a market economy between self-interest and those who believe in community values and stability.  These two CEO’s are following Potter’s model, putting their futures ahead of their responsibility to members.   The two Boards bought into the shell game; the employees put their names in the merger Notice in contrast to the values they had expressed making VSE truly special.

As the shallowness of this effort becomes more exposed, it won’t just be the members who will pay the price; the employees will learn that $100,000 plus jobs are a luxury when institutional success is the primary goal.

VSE member Don Kreis  foresaw this possibility in his comment letter:  If the $1.1 billion Vermont State Employees Credit Union cannot stand alone, cannot be just as convenient as a bank while giving members more value and more control than a for-profit financial institution can, then combining with another credit union is a waste of time. 

The problem is not size or resources.  It is a market-based society’s ever-present challenge of balancing personal self interest and community.  In an earlier blog, The Tragedy of the Commons, I expressed the view that this and similar mergers were a test of whether a unique credit union system can survive:

A coop system reliant on values as a differentiator cannot long continue with coops and market capitalist wannabes side by side.  For the latter will continue to prey on the former until everyone joins in the rush to get their share of cooperative gold.

Democratic coops should deliver more than for-profit banks. We need more Don Keis’s  in the movement– people of goodwill who serve, who are pro-human and who knit together the fabric of society.

We need more Bailey-like credit unions that give, that contribute, and that cement communal stability.

Taking easy money is brutally hard on members.

It’s also hard on the soul.