March 3, 2010                                                                 

 

 

Frustration With Banks

May Be Fueling Deposit Surges

 

 

Southwest Corporate Is Helping Credit Unions Deal With Cash Influx

 

 

 

Dallas--In the world of financial cycles, the first quarter typically means an increase in liquidity at credit unions. However, last year the liquidity surge of the first quarter never abated. Indeed, the tide of money kept pouring into credit unions in 2009 to the tune of an additional $72 billion, according to figures just released by the National Credit Union Administration—with $14 billion of it coming in the fourth quarter.

 

A number of reasons have surfaced to explain the steady rise in liquidity at credit unions—but one that has not been mentioned much is anger.

 

“There is a lot of anecdotal information that points to consumer frustration—and even anger—about banks,” said Dan Abdill, senior investment officer at Southwest Corporate Investment Services. “Consumers are mad at banks and are putting their money into credit unions,” he said.

 

Stock market uncertainty coupled with the low—or non-existent—rates of return offered to depositors may also play a part. “But I tend to think people are voting with their pocketbooks, and they are voting for credit unions,” Abdill said.

 

Two studies released in 2009—the University of Michigan’s American Customer Satisfaction Index and a study conducted by J.D. Powers and Associates—point out that consumers are becoming increasingly dissatisfied with banks. The J.D. Powers study found that only 35 percent of customers were highly committed to their retail bank in 2009, compared to 37 percent in 2008 and 41 percent in 2007.

 

Fees are the biggest gripe among bank consumers, the Powers report said. One in three customers who switched banks in the past 12 months did so to avoid high bank fees.

 

“Customer satisfaction with banking…was quite turbulent for individual banks,” according to the American Customer Service Index (ACSI).  Smaller banks fared better in the satisfaction ranking than larger banks. Smaller banks scored an 80 on the ACSI, while larger banks notched a 75. “Small banks tend to provide better and more personalized service…Credit unions fared even better with an overall ACSI of 84, built largely on the same individualized approach to service that distinguishes small banks,” the University of Michigan’s report stated.

 

Whether it is anger toward banks or a greater appreciation of the personal attention offered by credit unions, the volume of deposits pouring into credit unions presents an interesting challenge: what to do with all the money?

 

With lending still weak, credit unions must seek out good rates of return to invest their excess liquidity.

 

Southwest Corporate has been helping an increasing number of credit unions maximize and diversify their investment portfolio through its brokerage services department.

 

Last year, Southwest Corporate helped credit unions place more than $3.6 billion in term certificates, bank CDs or bonds through its brokerage services department. Southwest Corporate helped more than 700 credit unions complete more than 6,500 investment transactions. “2009 was a very busy year; 2010 looks to be even more so,” Abdill said.

 

Abdill added: “One of the trends we see as credit unions are looking to maximize the return on their investment portfolio is more of them placing funds in bonds. Throughout 2009, and now into this year, we have seen a consistent increase in credit unions investing in agency bullet and callable securities, as well as agency mortgage-backed securities.”

 

In addition to share certificates and bank CDs, the investment officers at Southwest Corporate have access to the bonds from 25 broker-dealer inventories through CU Investment Solutions Inc. (ISI).

 

“We are pleased we are in a position to help credit unions deal with their current abundance of deposits in a prudent manner,” Abdill said.  “If a credit union is overwhelmed with cash, we can put that money to work until it is needed to loan to members.”