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Southwest Corporate reports record investment activity
PLANO, Texas (7/2/10)--A large increase in deposits has sparked record-setting investment activity through Southwest Corporate FCU’s advisory and investment services, as credit unions seek to find alternatives to cash for their investment dollars, the corporate said. Nationally, credit union member deposits increased by more than $20 billion in first quarter 2010, according to National Credit Union Administration (NCUA) 5300 Call Report data. Credit unions have been able to lend about $1 billion of the “new money” to their members, leaving credit unions in a quandary about what to do with the remaining $19 billion, the Plano, Texas-based corporate said. The flood of cash into credit unions came despite many credit unions’ continued efforts to tighten deposit pricing, the corporate said. A further challenge occurred when investment yields continued to decline. Weak loan demand, the flood of cash, and incredibly low investment yields had an impact on portfolio decisions. Of the $19 billion in added liquidity, credit unions kept $11 billion in cash, increasing their cash positions to 8.79% of assets--the highest level in two years. The remaining $8 billion was placed predominantly in agency bonds. U.S. credit unions increased agency bond holdings by 12% in the first quarter, according to NCUA statistics. Agency bonds totaled $120 billion, or 38% of all credit union investments. The same trends played out at Southwest Corporate, said Mike McGinnis, Southwest Corporate Investment Services (SCIS) director of investment sales. Certificate balances remained constant through the first quarter, while overnight deposits increased by $1.5 billion, he said. Bond investments soared over the same period. McGinnis also noted that many new credit unions have been adding securities to their policies and portfolios, both through the SCIS advisory service--which has more than $10 billion in investments under advisement--and through Southwest Corporate's brokerage department, which is on track to place more than $1 billion in bonds this year through a partnership with CU Investment Solutions, Inc. “We saw a significant increase in credit unions placing bond investments through our advisors and investment officers,” McGinnis said. “In fact, total bond holdings purchased through our advisory service increased to $3.53 billion, the highest level in our 22-year history.” Southwest Corporate also experienced an increase in holdings with optionality and with maturities of between one and five years, he added. “When positioned properly, these securities can positively impact the portfolio and the overall balance sheet,” McGinnis said. “It is critical, however, that credit unions monitor cash flows and interest rate risk, as we anticipate a rising rate environment in early 2011. Because many credit unions are focusing on yield, we are ardently counseling investment managers to closely evaluate the impact of callable instruments and the prepayment/extension risk of mortgage-backed securities.”
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