CUNA economists address net income pressure on bottom line

BOSTON (6/24/09)--The overall economy has some good news, with a light at the end of the tunnel. But don't expect boom times ahead because this isn't a V-shaped recession, Credit Union National Association's economists told America's Credit Union Conference and Expo attendees Tuesday morning in Boston.

In their session on the economy and its impact on credit unions, Bill Hampel, CUNA chief economist, and Mike Schenk, senior economist, presented a general overview of the economy and how that affects credit unions' bottom lines and presented suggestions for getting through the tough times.

Click to view larger image CUNA Chief Economist Bill Hampel advises credit unions to keep their responses to the economy restrained and let their capital cushion do its work. He made the comments during a general session on the economy's impact on credit unions at America's Credit Union Conference Tuesday in Boston.
"Credit unions are collateral damage to the financial crisis and the recession. It wasn't because of stupid stuff you did, it's because of the U.S. financial markets in general. You have to take the hits, but the nasty effects are bottoming out," Hampel told credit unions.

He urged credit unions to be restrained in their responses and let their capital cushion do its work. "Avoid penalizing members with high fees and rate changes. Some credit unions that are in hard hit areas may have to make changes in loan policies," Hampel said.

Loan losses will eat net income but will back off later this year and next, and yield curves will get steeper, he said. But credit unions don't need to run CD specials or pay higher rates. "Instead of a sale, tell members you have money to loan," he said.

Net worth is more important than net income, Hampel said. Credit unions ended 2008 with a capital-to-assets ratio totaling 10.8%. In 2009, it would reach 9.7% and by 2010, it would be 8.7%. "If we end the three worst years with a 9.7%, that's not the worst place to be," he added.

Click to view larger image Mike Schenk, vice president of economics and statistics and senior economist with the Credit Union National Association, outlined the general economic outlook for attendees at session at the America's Credit Union Conference in Boston Tuesday morning. He noted that the Fed's target interest rates likely will stay the same--near 0%-- throughout the middle of next year. (Photos provided by CUNA)
Schenk said there is good news in the overall economy. "Two or three months ago we were talking about whether the financial system we know and love would survive," he began. "Today we see that the light at the end of the tunnel is actually the end of the tunnel and not a train. We still have a long, difficult and uncomfortable time ahead, but we're on the way out."

He noted the rate spreads have declined but now the market is functioning more normally. "Since the downturn, we lost six million in jobs, and there are nine million who are underemployed (working part time). The rate of decline has slowed—that's good news and says to us the worse is over." Still, the unemployment rate is at 9.4% and will be at 10% this year and up to 10 1/2%, which means another 1 1/2 million people will be out of work by next year. He noted personal consumption is up and the majority of the economic indicators index is on the upswing.

However, there are a few concerns. Net worth has declined within a short time, equities aren't going anywhere and net worth won't be changing dramatically anytime soon.

In the housing sector, he noted, last year saw 1 1/2 million foreclosures, with another 1 1/2 million expected this year, "despite programs to soften the blow," Schenk said.

For more coverage, check out News Now's blog and Credit Union Magazine's Daily reports online. Use the links.

print this story email this story
Resource Links
ACUC blog from News Now
ACUC Daily News
Related stories from America's CU Conference & Expo


More CU/System

Copyright © 2012 Credit Union National Association