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It’s day five of the Las Conchas fire and this morning the beast earned the distinction of the largest forest fire in New Mexico history. And it’s in my backyard.

Every day it’s hot. Usually gets to a high of 95 degrees and about 11% humidity. Some might call it a “dry heat.” Argh! Late afternoon the wind kicks up and so does the fire. We all collectively hold our breath that the direction is blowing AWAY from our town, and then by about midnight the wind dies down completely. So by morning it looks like this:

This is my new normal. I can’t really see very far. I have no idea when this is going to end. There will be all kinds of damage still visible when the fire crews go home. It’s going to take decades for the forests to recover.

Kind of like our economic situation.

There are two camps in a crisis. The let’s wait and see if this fixes itself and hope it ends soon. And then there are the people that take action so that they can move on. Things will never be like they were. The landscape is entirely different. My horizon has changed.

Do I sit back and mope and bitch and blame? Or do I look at the bright side? I still have a lovely home, and got to know a bunch of my neighbors and their dogs. I still live in the Land of Enchantment. I also have a wonderful job, in this economy.

So the lesson learned. This is the New Normal folks. Accept it. The smoke is not going to clear anytime soon and give you back your easy breezy days of big fat margins and bucket loads of credit worthy members. We have to figure out how to make a profit in THIS environment. Charred trees and all.

TGIF.

I dont’ think I’ve ever gone three weeks without a blog post. After Steve Jobs broke the four minute mile and lapped us, my mind went into simmer mode.  I had some great comments from some very smart people on that last post. It gave me pause.

Tim McAlpine made this comment:

Who knew the sleeper of an iPod / iTunes combo created a decade ago would lead to iWorld – a magical place where you need not go outside (or carry cash or plastic).

People inside the financial world will dismiss this invention just like the extinct record stores and newspapers and the bookstores and the video stories and the…

And then Borders filed for bankruptcy (as expected). Another warning shot across the credit union bow – a shining example of disruptive technology destroying an entire industry.

Why did Borders Books, Music and Movies ignore the trifecta of disruptive technology that was the Kindle, iPod, and Netflix?

Because their target audience (current customers) were not early adopters of technology and would likely never shift over. There are plenty of people that still love to hold a book in their hand and buy CDs in their plastic case and put them on a shelf in their home. Barnes & Noble was allowed to survive and will hang on a bit longer because they also mimicked Amazon.com early in the game by opening an online store.

One could argue that most existing credit union members (age 48 on average) are not likely to use PayPal or move to an electronic wallet. Too late in the game to change. So we’re safe, right? For now.

But it begs the question: “What about future customers?” New customers are born every day. And this Generation named Y is the second largest in US history. When they reach the age of disposable income and independent transportation (16) are they gonna drive to Borders to buy the latest Lady Gaga CD? Hell no.  They are going to download it to their iPhone.  That’s what killed Borders.

Apple’s electronic wallet is not going to destroy the banking model over night – but the model will replace the traditional process of moving money for Generation Y and Z. They won’t have to switch – they will merely be provided with two options. Drive down to your parents credit union (at $4.00 a gallon in gas) and stand in line to deposit a check or sit in line at the drive-up ATM (wasting precious fossil fuel) OR upload money to their phone.

Our world has changed. The iPhone is really a disruptive innovation. Jobs improved our product and service in ways that the market does not expect, and is designed for a different set of customers. The next generation of customers.

The numbers are there to support our eventual Border-like-demise. The average age of a credit union member continues to inch up and for most risk-averse-regulator-devout-near-retirement leaders, the loan-to-share ratio continues to decline. Some of these venerable commanders have even declared that “It’s not going to be my problem, because I won’t be around in five years.”

There is no better form of validation of Jobs innovation than that statement, in my opinion.

Last month I got a call from Rein Whitt-Prichette, an Albuquerque artist.  He heard about this thing called a credit union and needed information on how to start one. His vision is to have the First National Artists & Craftsmen financial cooperative. This would encompass everything from jewelers to actors to cabinetmakers to weavers. He asked if he had the right place and person.

I work at a trade association for credit unions. I’ve been in the movement for 30 years. I’ve never chartered a credit union. But, he had the right place and person. Our particular trade association was formed in 1955. Twenty years earlier Father E.J. McCarthy formed the first of many credit unions in our state. At the peak (1967) there were 141 credit unions here. Today there are 51.

I googled “How to Start a Credit Union.” The NCUA.gov page was very resourceful. I killed about 2 1/2 trees printing out the instructions and three-hold punched them into a nice big notebook. I even made a snappy cover page “How to Start a Credit Union.”

Then I met with Rein. He’s a man with a wonderful smile, and thoughtful eyes – he also looked to be on the verge of homelessness. Rein is not a hobby artist. Art is his life’s work – his job.

I googled Rein. He has pieces in the Albuquerque Art Museum. He illustrated a first edition book for the Franklin Mint. He’s an expert serigrapher. And this economy has kicked his ass. It’s hard to say how old he is, but I would venture to guess late 50s early 60s.

Rein is not pursuing this for his own interests. He has a simple list of goals:

  1. For artists and craftsmen to be recognized as business owners – not hobbyists. A bank, for instance, will make a loan to a peach farmer for next year’s crops – but not to an artist.
  2. For artists and craftsmen to have a place where they do not get charged $25.00 to receive a wire transfer (payment for a piece) and get charged $2.00 to make an ATM withdrawal.
  3. For someone to see beyond credit score (Rein does not have one – at all) and recognize the booms and busts that the art world experiences.

Before meeting with Rein I was prepared to refer him to one of our community chartered credit unions. And not in anyway to offend these open fields of membership but, let’s be perfectly honest – the chances that they will lend Rein money – no credit score and the only collateral is his art – zero.

So how about taking in the artists as a SEG with a select employer group credit union? That’s possible – but unlike the law firm, or the retail outlet or daycare centers we’re used to scooping up – artists don’t have paycheck stubs.

Then it hit me. There’s nothing to preclude them from starting a financial cooperative the good old-fashioned way. Or, as I like to call it “shoebox on a shoestring.”

Show of hands if your credit union started this way. Chances are, if you were chartered in the 1930’s your hand has to go up.

It was after the Great Depression. Credit Unions were growing at break neck speed. People with a common bond (and we are NOT talking lives works worships in a five county area) would pledge a portion of their pay to be held in a shoebox in a drawer. A ledger kept track of their shares. A credit committee, or a jury of their peers was formed.  Loans were granted based on character, capacity, and collateral. Credit scores did no exist. Losses were minimal because of the shame of non-repayment. Early credit unions were like borrowing money from your friends and co-workers – only a little less awkward.

The average credit union in the 1930’s had 187 members. Many of those credit unions are still around today – over $1 billion in assets.

The billion dollar credit union of today is largely serving the steadily employed, A+ credit, low-risk, middle market member. Banks take care of the elite, high wealth population, and payday lenders are thriving with the underserved.

In this economy the middle class is shrinking – so are the number of credit unions. Sure, many offer payday alternative loans and courtesy pay products with less than loan shark level fees. But who’s taking care of the little guy? Who’s looking out for Rein?

My new year’s resolution is to find a way to pool the resources of the art community in New Mexico. Tourists come to the Land of Enchantment for the arts (and the green chile cheeseburger). An investment in the art community is good for our entire state. We can’t afford to lose the art of Rein.

I’ll keep you posted on this journey…

 

I’ve done a fair amount of strategic planning over the years. Mostly facilitating, some participating. On either side of the board table I always went in with this filter: How can we thrive? How do we plan for overwhelming success? Lines out the door, phones ringing off the wall, media coverage out the butt kind of success. Sure, some people look at me like I’m insane – especially in this economy.

But I’ll bet Steve Jobs thinks that way. So does Tony Hsieh. Even Ford is optimistic right now. Southwest Airlines posted another profitable quarter. Starbucks has righted their ship.

How about your credit union? Doom and gloom? Still pissed off at the corporate assessments? Held hostage by your DP vendor’s inabilities? Do you blame NCUA for your lack of innovation? Afraid of losing your job?

According to Jim Collins, author of Good to Great,  if you are not a Level 5 Leader, you will likely not thrive in this recession. A level 5 leader “builds enduring greatness through a paradoxical combination of personal humility plus professional will.”

Take 2 minutes and 35 seconds to watch this clip of Jim describing what it means to be a Level 5 leader. I got choked up.

Tony Hsieh does not have a corner office on the 32nd floor. Instead he parks his Level 5 butt in a cubicle in the middle of his call center.

Steve Jobs quietly took sick leave to battle a severe illness while still introducing the iPad to initial media criticism.

Howard Schultz admitted publicly that Starbucks grew too big, too fast. He lost sight of their original vision and posted his strategic plan on their website so the public could hold him accountable.

Yet in the credit union land we see massive mergers, not just among member credit unions but now trade associations and of course the corporates are seeking this shelter from the storm. Credit unions continue to be followers rather than leaders when it comes to innovation.

Edward Filene was a Level 5 leader. What would he tell us today? He put cause before his own ego. He made sacrifices physically, professionally and financially for the movement. Because of his leadership credit unions did not just survive the Great Depression, history showed us they thrived.

Are you a Level 5?

Ultimately our members will decide if THEIR financial cooperative will survive or thrive.

What is the average age of your membership? Around 48 if you’re anything like the national average.

What’s the average age of your borrower? Older? Most likely.

A couple of weeks ago I saw Bill Hampel’s economic forecast. It was bleak, as expected but one of the charts really surprised me. He predicts a sharp decline in loan-to-share ratios over the next few years. Now according to my math, they should start going up.

This year Generation Y outnumbers the Baby Boomer generation – the largest generation in American history. How can that be? Because the Boomers are dying. And those that haven’t died are paying their loans off – their borrowing years are behind them.

Generation Y on the other hand turns 28 this year, the youngest just got their driver’s permit (age 15). From buying their first car to their first home, we have 70 million opportunities to loan.

When the 75 million boomers were in their borrowing years life was good.

This is the “echo” of that boom.

Can you hear it?

It’s no secret. CFOs and Marketers are know to butt heads over budget. Why is this? Because they are not speaking the same language. Here’s a great example.

What a Marketer says: “I need to increase my marketing budget by 25% this year.”

What a CFO hears: “I need to ruin your ROA projection for 2010.”

Speaking CFO is essential to the success of marketing, especially in these tough economic times. On Monday, May 17th, at 10am PST the Liquid Lunch will feature two amazing CFOs. Two guys that get it because they have fully functioning right brains and left brains.

Kelley Parks, creator of gira{ph} will be the host, as George Kite, CFO of Call Federal CU and Mark Sadowski, CFO of LaCamas Community CU share their secrets to charts & graphs and unlock the mysteries of ROA.

You won’t want to miss it.

[This appeared in the March 31st issue of CU Times under a slightly different title]

I am not an economist, nor do I play one on TV.  My only exposure to economics theory was at Western CUNA Management School with the great Dr. Jim Likens. I still remember the bathtub with the faucets and drains image. So I kind of understand how the economy works.

The job of an economist is very similar to a meteorologist or astrologer. It’s a guessing game and you’re allowed to be wrong – frequently. Why is this? Because it’s the study of human behavior, the atmosphere and the celestial bodies. All of which are random, ever changing, mysterious and fickle.

I offer this opinion on our current economic condition: The economy sucks because our society’s values suck. There, I said it.

Everyone is looking for some one or some entity to blame. We are all somewhat complicit, in my opinion. I recall a certain Corporate CEO addressing an angry mob implying that the investment risk that was taken was in direct response to their demand for higher rates from their Corporate!? He was implying that the angry mob created the problem and therefore should suck it up. I kind of get that.

If economics is the study of human behavior, there’s no better illustration of that than the cost benefit principle and courtesy pay. Our original mission of promoting thrift, and making loans for provident and productive purposes only, vanished with courtesy pay. It was widely adopted on the premise that the benefit of not being humiliated by a bounced check was outweighed by the cost of a 300% loan. Whatever happened to the overdraft line of credit? Too costly, for us. The typical failure of a cost benefit analysis is not including all costs. In the case of courtesy pay, the cost of eroding reputation.

According to famous economist Milton Friedman, market economies are inherently stable if left to themselves and depressions result only from government intervention. The government recently intervened on certain courtesy pay practices. This benefit apparently was having an impact on our economy.

And so, credit unions have become fast followers, very seldom pioneers.

It reminds me of one of my favorite economist jokes:

Two economists are walking down a busy street and come upon a 100 dollar bill lying on the sidewalk. One bends down to pick it up and the other says “Wait, if that were a real 100 dollar bill, someone would’ve picked it up already.”

When credit unions consider a new product, rather than relying on the relevancy of the product to their target, they tend to give more weight to the idea if enough big credit unions are already doing it with some success. And therein lies the problem.  We are following, rather than differentiating from, our competitors.

30 years ago very few credit unions memberships overlapped. In fact, if there ever was an overlap it was addressed, protected and the offender was often beaten into submission.

HR 1151 changed all that. It scared many credit unions into abandoning a single sponsor – a very defined target audience- for the unknown community that was already being served by the banks.

The lemming was born. Name changes were rampant, ad agencies were raking in huge dollars to rebrand a 50 year old moniker to something as generic as possible. Credit unions began to compete with each other.  The club was killed. Membership flatlines for the first time in history.

The supply was great, the demand was not there. Once people have had a chance to react in the marketplace the easy opportunities are used up. We entered a saturated banking market with me too products and fewer branches. We seldom offered a compelling reason to switch and often resorted to an embarrassing cry of “Now anyone in the city can join!”

The majority of our marketing dollars were spent on luring in complete strangers rather than rewarding long term, loyal, profitable owners, who will market for us. The cost to switch banks today is too great – even with membership bribes that promise iPods and cash.

Differentiation is critical to your individual credit union. Not to the general public. We’ve been focusing too much on trying to explain the difference between banks and credit unions. No one cares. What should keep us up at night is how do I differentiate myself from the half dozen community chartered credit unions in my marketplace.

We have found the real enemy – and it lies within.

Last night I received an email response from David Mooney, President/CEO of Alliant Credit Union. He has given me permission to post his reply.

Denise,

I enjoyed your article in the March 31 CU Times, and thought it was right on the mark.

When I came to Alliant in 2003 after 25 years in banking with Chase and predecessors, I was surprised that so many credit unions had adopted community charters.  I wondered why they would be so eager to give up their substantial advantage as “the company store” to compete in the red ocean of traditional retail banking, on the same basis (location) as 7,000 banks and a lot of credit unions.  As you point out, there is very little differentiation, plus it is a higher cost model.  Some seem to have believed that the “grass was greener”.  Others, I’m sure, felt they had no choice in light of sponsor issues.  Allliant, the former United Airlines Employees Credit Union faced this challenge when the Airline was in bankruptcy.  We concluded that we needed to diversify membership to sustain our mission (which is not to stay in business or grow, but to provide consistently superior financial value to members) but knew and liked the SEG model, so we went the multi-sponsor route.  That allowed us to retain our substantial cost and price advantage (operating expense/assets under 1%, top 1% of CU’s in total member giveback); offer a compelling and sustainable value proposition to sponsors and members (high value employee benefit at no cost to the employer); use the sponsors’ media and channels to acquire new business in wholesale chunks; and stay out of the branch arms race (which, like all arms races, no one wins but costs everyone a lot.)  Yes, we are somewhat constrained by a limited branch network (10 locations across the country, no cash handling), but that’s a big source of our cost advantage and our members are here for the reliably great rates and low fees, not locational convenience.  Many have checking accounts at local institutions for branch access… but we have their balances.

The strategy has worked pretty well: we have had consistent growth in membership, loans and deposits well above the industry average, we have a strong balance sheet, and most importantly have continued to provide market leading returns to members.  Our growth does not depend on rate promotions or giveaways – which tend to create temporary relevance, promote mercenary behavior and undermine loyalty – or on adding expensive branches.  In fact, we have reduced our branch footprint by 44% in the past 5 years.  For branch-based institutions, market share is largely a function of branch share, which means that they must expand their footprints to grow.

You are right – no one really cares about the difference between a bank and a credit union.  What consumers care about is a good answer to the question “why should I do business with you?”.

Regards,

David Mooney

President/CEO

Alliant Credit Union

I blame Sally for this recession.

The first prime-time animated TV Special based on the comic strip Peanuts aired on Thursday, December 9, 1965, preempting the Munsters and following the Gilligan’s Island episode “Don’t Bug the Mosquitoes.” Coca Cola was the sponsor and 50% of televisions in the US were tuned to this historic first broadcast. I was three.

Every year the show would air once. There were no VCRs, TiVos or Hulu.  There were only 4 stations. We were captive. We were the baby boomers and we wanted our fair share.

  • Instead of saving for that new television like our parents did, we’ll charge it!
  • We’ll buy a new car instead of a used car and finance 100%!

I want it NOW daddy! – Veruca Salt, from Willy Wonka

  • Everyone should have a home – that’s the American dream! Even if I have to lie to get it. And I’ll use that home like an ATM so I can get the tax write-off!

Sigh…..but then Linus takes the stage and reminds us of the reason for the season:

And there were in the same country shepherds abiding in the field, keeping watch over their flock by night. And, lo, the angel of the Lord came upon them, and the glory of the Lord shone round about them: and they were sore afraid. And the angel said unto them, Fear not: for, behold, I bring you good tidings of great joy, which shall be to all people. For unto you is born this day in the city of David a Saviour, which is Christ the Lord. And this shall be a sign unto you; Ye shall find the babe wrapped in swaddling clothes, lying in a manger. And suddenly there was with the angel a multitude of the heavenly host praising God, and saying, Glory to God in the highest, and on earth peace, good will toward men.

Merry Christmas.

Time of death. 5:04 pm on September 30, 2009.

127049-gm-to-close-saturn-as-sale-collapses-410x230The life support systems are slowly removed. There’s an eerie silence in the room after the monitors are shut down. Heads are bowed. I can only imagine that was the scene in the board room in Detroit yesterday when Saturn breathed its last breath.

I was there when Saturn was born. A shiny baby sedan screaming into the world. Who couldn’t love this little car? It was the perfect child of GM. Right out of the womb it proved itself to be low maintenance, reliable and a personality to boot! 

There were some troubles during the teenage years and that’s when big bad daddy GM stepped in and sent Saturn to military school. Our baby changed. The spirit beat out of it. It had to conform. 

And so it began to act out. Started running with the wrong crowd. And eventually, died too young. 

Even though my last words were harsh and riddled with disappointment, I hope that Saturn knows all the joy it brought me. From my first SC1 Toonces, to Buttercup the SL2, my gorgeous Daisy VUE, Ruby the ION and now Sunkist the leaky windshield VUE. 

We’ve had some good times. You will be remembered.

You must first believe that America is the greatest country in the world. 

Then you must believe that you, as an American have a responsibility to uphold that reputation. Every decision we make, especially in our businesses, communities, and families, has a ripple effect on how we are viewed by the rest of the world.   

Yesterday Mark and I ran the Stephen Siller Tunnel to Towers Run in New York City. It was to commemorate the firefighter who ran from his home in Brooklyn, in full gear, through the Battery Tunnel to the burning twin towers on 9/11. He was a father of five, and a loving husband. He died in the towers that day. Along with 342 of his co-workers. Risking their lives by saving our spirit. 

alg_firefighters25,000 runners and walkers soaked by rain – some of us thinking we should have trained harder and probably not had that martini the night before – were greeted emerging from the 1.7 mile tunnel by the most amazing site.  Standing in the pouring rain were 343 uniformed men holding a banner with the picture of each firefighter killed on 9/11. Across the street were 343 uniformed men holding an American flag. They created the most inspiring tunnel of patriotism that people began to chant “USA! USA! USA!” I had trouble breathing, not only because we just ran up a hill, but because I was so choked up. 

Saturday morning before we left for the city, a venerable NYC company – Macy’s  – sent me a notification of change of terms. Seems I had to “opt out” of a new interest rate of 63%, should I ever be late on my bill. To opt out meant writing a letter or calling an 800 number. It’s not easy to opt out. And that’s the point. 

Stephen Siller had the day off on 9/11 and was on his way to play golf with his 3 brothers when he heard the towers were hit. He opted out of the game and instead turned around. He couldn’t drive through the Battery Tunnel because it was closed by then. So instead he opted out of laziness and excuses and ran the three miles with 74 pounds of gear on his shoulders.

He was last seen at West and Liberty Streets. 

These are tough times indeed. It’s easy to sit back and watch. To hope someone else will fix it. 

Opt out of apathy. Fight for our liberty. 

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