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Turmoil fuels growth at Corporate America Credit Union

Posted on October 15, 2010

Corporate America Credit Union, a little-known financial institution in the Birmingham area, has emerged from the recession in a position of national strength.

After a surge in competitor takeovers, the nonprofit company is experiencing phenomenal growth in providing behind-the-scene services and investment choices to hundreds of credit unions in 23 states.

Corporate America has operated for many years with a low profile because it is a corporate or wholesale credit union, one of 27 such institutions nationally serving thousands of retail credit unions – those well-known, member-owned cooperatives often serving workplaces or specific communities.

Wholesale credit unions invest money and provide financial services such as check clearing for retail credit unions.

“We’re kind of like a banker’s bank,” said Thomas Bonds, president and CEO of Corporate America. “We’re kept a pretty big secret.”

But wholesale credit unions have been attracting attention.

On Sept. 24, the National Credit Union Administration took over three large wholesale credit unions.

That came after regulators last year established conservatorships for the nation’s two largest wholesale credit unions – U.S. Central Credit Union in Lenexa, Kan., and Western Corporate Federal Credit Union in San Dimas, Calif.

The takeovers were necessary because regulators estimated the five wholesale credit unions were being crushed by $15 billion in losses tied to investments in private label, mortgage-backed securities.

Bonds said the takeovers made Corporate America the largest wholesale credit union in the nation not operating under a conservatorship.

And credit unions seeking a safe haven after the failures of five corporate credit unions are turning to Corporate America, Bonds said.

Assets have grown to $3.5 billion in August 2010 from $1.8 billion in August 2009. Corporate America’s customers have jumped to 321 credit unions from 211 credit unions.

A year ago, Corporate America just had customers in surrounding states; now its customers are in 23 states, Bonds said.

Business is booming because Corporate America was one of a few wholesale credit unions that didn’t cause customers to lose money during the mortgage security crisis, Bonds said.

Corporate America was hit by losses, but they were relatively small and manageable. For instance, earlier this year Corporate America liquidated that last of its toxic assets – $140 million in non-governmental mortgage-based bonds. But it also sold performing bonds at a profit to offset losses.

Corporate America also lost $30 million in the U.S. Central collapse, but that was the lowest exposure among all the corporate credit unions, Bonds said.

Moreover, according to the Credit Union Journal, Corporate America has filed a federal lawsuit against U.S. Central’s board, and its accounting firm.

The key to Corporate America’s stability was a strategy developed in 1999 when Bonds came to the institution after working as a field examiner for the National Credit Union Association.

At the time, 85 percent of Corporate America’s portfolio was in investments that now would be considered toxic.

Bonds and the board reversed the mix and put 90 percent of the portfolio in government-backed investments, and 10 percent in riskier investments.

The returns weren’t as good in the short term, but in the long run, the strategy worked.

Bonds now believes consolidation of the 22 remaining corporate credit unions is in the future, with opportunities for Corporate America.

John McKechnie, a spokesman for the National Credit Union Administration, said corporate credit unions are in the process of reformation following the crisis.

Already, the industry has passed rules lowering investment risks and strengthening capital requirements.

And there could be big changes in the corporate credit union structure beyond that.

“The industry has to come to terms with what services they want out of corporate credit unions,” he said.

Bonds said Corporate America is poised for careful growth.

“We’re not in the mode to grow for growth sake,” he said. “We believe credit unions deserve a good corporate credit union. We are obviously national. We will continue to grow.”

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