| T.R | Title | User | Personal
Name | Date | Lines |
|---|
| 770.1 | | STRWRS::KOCH_P | It never hurts to ask... | Mon Mar 07 1994 23:13 | 7 |
| Maybe the thing the board should be concerned with is getting IN
WRITING, a firm committment on sponsorship from the Digital SLT for say
a 10 year period. This way we won't have to manage our capital ratio
anticipating an event which may not happen.
Who has Lisa talked to in Digital that is telling her that sponsorship
is in possible jeopardy?
|
| 770.2 | | ASE003::GRANSEWICZ | Candidate for DCU Director | Mon Mar 07 1994 23:41 | 32 |
|
>I got a call from Lisa DeMauro Ross recently in response to a reply I made
>in this conference. When the topic of the capital ratio came up, she said, in
>effect, that one of the primary motivators for growing the capital ratio at
>the current rate is so that the DCU can protect itself in case Digital ends
>its sponsorship agreement with DCU.
Well, all I can say as a Director of DCU is that this is the FIRST I
have heard of this reason for growing the capital ratio. I have heard
NOBODY else at ANYTIME state what is mentioned above. If this has been
discussed it hasn't been discussed in any Board meeting I have attended
and I have attended ALL of them. Lisa Ross needs to explain to the
membership the basis of this statement immediately. Members might come
to the wrong conclusion concerning DCU's future.
>So here's a question for the DCO BOD and DCU employees who read this file. Is
>Digital's sponsorship of the DCU at risk?
Not that I am aware of. The removal of Digital support of DCU is NOT
an issue IMO.
>Could the DCU remain solvent in case this happened?
YES! DCU is solvent and will remain solvent!!
>Has there been any study, or analysis, of the sponsorship cost
>and what kind of asset base would be required for DCU to be self sufficient?
As a Director of DCU I would expect that if one had been done, I
would have been properly notified and given a copy. Since I have none,
I must say that the answer is no.
|
| 770.3 | | STRATA::JOERILEY | Legalize Freedom | Tue Mar 08 1994 02:49 | 12 |
| This is just my opinion but I think most of the current BoD (especially
a couple that are running for re-election) see the end is near and are
starting to grasp for straws to try and keep their positions. It's
also my opinion that two of three seats up for re-election will soon be
filled with new people. Don't drop the ball here, please when the rest
of the BoD's terms expire and they're trying to get re-elected remember
where they stood on this very important issue and all issues for that
matter and vote in the people that you want to take the CU in the
direction you think is best. Never again will I vote for any body
who's position isn't crystal clear.
Joe_who_learned_the_haed_way
|
| 770.4 | Phil has more faith in Digital then I do | CVG::THOMPSON | An other snowy day in paradise | Tue Mar 08 1994 08:16 | 17 |
| I once thought that my job was secure at Digital. I don't anymore.
I once thought that my medical coverage was secure at Digital. I
don't anymore.
I once thought that regular, annual raises were secure at Digital. I
don't anymore.
I once thought that a whole bunch of various benefits of working at
Digital were secure. I don't anymore.
While I am certainly not aware of Digital planning on reducing support
for DCU only a fool would consider Digital support for anything to be
a sure thing. Prepare for the worst so you're not surprised when it
comes.
Alfred
|
| 770.5 | | ASE003::GRANSEWICZ | Candidate for DCU Director | Tue Mar 08 1994 08:35 | 11 |
|
Alfred, you need to differentiate between active support and passive
support. Digital does NOT give us money (active support) but simply
provides DCU with some space at no cost. Lisa implies that we will
either be thrown out of Digital facilities or will be charged for
space. NEITHER case has even been brought up before, let alone been
used as justification for the rapid capital ratio buildup. I'm sure
Lisa wasn't trying to scare people with that comment but I fear that is
the effect. I have sent her mail asking her to clarify the matter.
Hopefully she will respond.
|
| 770.6 | | TOOK::DELBALSO | I (spade) my (dog face) | Tue Mar 08 1994 12:32 | 11 |
| re: .5, Phil
> Lisa implies that we will
> either be thrown out of Digital facilities or will be charged for
> space. NEITHER case has even been brought up before
That would kinda shed a whole new light on the John Simms concept of "an
important Employee Benefit", wouldn't it?
:^)
-Jack
|
| 770.7 | | AOSG::GILLETT | Candidate for 1994 DCU BoD Elections | Tue Mar 08 1994 13:13 | 10 |
|
Well, in a recent conversation with a member of Digital's upper
management, I allowed as to how DCU had a special relationship
in that it was an important employee benefit. I was told that it
was not an employee benefit, but rather an outside organization.
Whod've thunk it?
Chris
|
| 770.8 | | PATE::MACNEAL | ruck `n' roll | Tue Mar 08 1994 15:40 | 13 |
| �Digital does NOT give us money (active support) but simply
� provides DCU with some space at no cost.
Then what is all the hoopla about the subsized DCU and how it should be
paying great interest because of it?
�Lisa implies that we will
� either be thrown out of Digital facilities or will be charged for
� space.
Why not read what Lisa said instead of trying to figure out what she's
implying. Once again, I think you are looking for something that isn't
there.
|
| 770.9 | | LEDS::ROSS | | Tue Mar 08 1994 16:09 | 80 |
|
770.0> I got a call from Lisa DeMauro Ross recently in response to a reply
770.0> I made in this conference. When the topic of the capital ratio came
770.0> up, she said, in effect, that one of the primary motivators for
770.0> growing the capital ratio at the current rate is so that the DCU can
770.0> protect itself in case Digital ends its sponsorship agreement with DCU.
No Chris, that is not what I said. In regard to your question of what is
the "right" level of capitalization for a credit union my answer was/is
the following:
Each credit union must understand the business factors and risks that
it operates in. Based on that, the Board set the strategic direction and
operational goals for the institution. The Board is committed to achieving
at least the industry average of an 8.5% Gross Capital Ratio by year end 1996.
What is Capital?
Capital is the industry metric by which the regulators, the auditors and
members measure financial soundness. It protects members from loss or sudden
changes in the business environment that we operate in.
Is it in the best interest of the member to slow the growth of Capital?
IN MY PERSONAL OPINION......ABSOLUTELY NOT!.
Why?
1. Even though we have made record improvements in our Gross Capital Ratio
over the past 2 years, according to industry experts (our auditors,
our regulators, Board of Directors of other institutions I network
with, and various articles) tells us that, compared to other credit
unions our size, we are behind our peers. WE NEED TO BE AT LEAST
AVERAGE WITH OUR PEERS ON THIS METRIC.
WHY??....My personal view is>>>>> The DCU is NOT at less risk
of loss or sudden changes in business factors than its peers.
All credit unions face issues like:
I. Interest Rate risk and growing concerns of inflation;
II. Legislative changes, such as taxation;
In addition, we have some DCU specific issues. For example,
I. Field of Membership. Our sponsor has significantly
reduced its workforce over the past 2 years. It is
my expectation that DEC will continue to have work
force reductions in order to match the new business
model that the company wants to operate under. This
poses 2 issues for the credit union: a.) How do you
keep these members i.e. asset size, b.) Is our loan
portfolio at risk if folks are laid off and are unable
to make good on there liabilities.
II. Operating risk, such as loss of use of FREE space for
DCU in Digital Facilities...HOW WOULD THIS CHANGE
OUR BUSINESS MODEL? The IBM credit unions are dealing
with the realities of this question.
DON'T MISS UNDERSTAND ME....Digital Equipment Corp is
a generous and supportive sponsor, AND I AM HOPEFUL THAT
OUR RELATIONSHIP WILL CONTINUE. THERE HAS NEVER BEEN
DISCUSSIONS ON THIS SUBJECT!
However, it is a risk BASED ON INDUSTRY TRENDS. And
it is my responsibility to be PROACTIVE in managing
against business risk on behalf of the membership.
2. Who OWNS the Capital?....THE MEMBER!
How do we maximize the return on Capital for the member?
Some say it is the giving of $5, as an example, back to every member
and the "goodwill" it would promote.
My personal belief is, given that we are still below the average gross
capital ratio for credit unions our size, member's capital is maximized by
pooling those funds on the balance sheet to further protect the members
investment and interest in the cooperative.
In addition, I believe that by pooling capital the DCU can offer more and
more competitive rates on both savings and loans so that members benefit
and they will have greater incentive to use additional products and
services of the cooperative. IN THAT WAY THE COOPERATIVE IS STRENGTHENED
AND ITS OWNER'S INTEREST MAXIMIZED.
|
| 770.10 | | WLDBIL::KILGORE | Time to put the SHARE back in DCU! | Tue Mar 08 1994 16:15 | 30 |
|
.8> Why not read what Lisa said instead of trying to figure out what she's
.8> implying. Once again, I think you are looking for something that isn't
.8> there.
What Lisa reportedly said that DCU should be able to "protect itself in
case Digital ends its sponsorship agreement with DCU."
She cannot say something like that without causing reasonable people to
wonder why she said it -- especially a fellow director who was not
privy to this concern prior to the statement. Reasonable people must
assume one of the following:
1) Lisa has at least some reason to suspect that Digital is at least
toying with the idea of ending its sponsorship. Perhaps not an
unreasonable suspicion -- but why was a fellow director not made
aware of it, when it has considerable ramification on the future
operations of DCU?
2) Lisa has no particular reason for the suspicion, but is preparing
for all possibilities. Again, not unreasonable, perhaps even
commendable -- but the root of her concern should be established so
people can apply the proper weight to her comment.
3) Lisa has dropped a red herring into the discussion of rewards to
members versus growth of the capital ratio. It is possible that this
comment has no more relevance to the discussion than "No Fair Method
of Distribution", which is flatly contradicted by past operations of
DCU and current operations of LAFCU.
|
| 770.11 | | NASZKO::MACDONALD | | Tue Mar 08 1994 17:08 | 27 |
|
Re: .9
> How do we maximize the return on Capital for the member?
>
> Some say it is the giving of $5, as an example, back to every member
> and the "goodwill" it would promote.
Lisa,
Since it was me that mentioned "goodwill", I'll be clear about that.
The comment had nothing to do with maximizing the return on Capital.
What it DOES have to do with is showing that the BoD and the DCU
management is LISTENING to the members. Frankly, the actions taken
by the BoD in light of the resolution against fees at the special
meeting leave a lot of doubt as to whether the BoD cares a whit about
what the members want. IF YOU DON'T HAVE THE CONFIDENCE AND SUPPORT
OF THE MEMBERS IT DOESN'T MATTER WHAT NUMBERS YOU GENERATE BECAUSE
THEY'LL ALREADY HAVE TAKEN THEIR BUSINESS ELSEWHERE.
The only thing being consistently asked in this file by unhappy members
is to be certain that your actions are in accord with the wishes of
the membership. You may be satisfied that the actions taken are, but
many others are not so certain.
Steve
|
| 770.12 | Watch the speedometer, not the road | AOSG::GILLETT | Candidate for 1994 DCU BoD Elections | Tue Mar 08 1994 18:02 | 185 |
| <In Note #770.9, Lisa DeMauro-Ross writes...>
>No Chris, that is not what I said. In regard to your question of what is
>the "right" level of capitalization for a credit union my answer was/is
>the following:
>
>Each credit union must understand the business factors and risks that
>it operates in. Based on that, the Board set the strategic direction and
>operational goals for the institution. The Board is committed to achieving
>at least the industry average of an 8.5% Gross Capital Ratio by year end 1996.
When this number was agreed upon, were *all* business factors related to
this credit union considered? For example, it is indeed true that
the sponsor is reducing it's workforce size, and will probably continue
to do so into the forseeable future. This is something to clearly
take into consideration. However, did the Board also compare loan default
rates to those of the peer group? Based on information I've seen, I
would at least suspect that our default rate is considerably lower than
the peer group average. Further, the default rate has remained consistently
low despite workforce reductions.
The minutes from a recent Board meeting put the default rate, as I recall
without notes, about 30% lower than budgeted, and would have been 70%
lower save one large default. Considering that we seem to always come
in low on loan defaults (that is, excluding the Mangone fraud), it would
seem reasonable that our capital ratio could still be somewhat below
industry average and DCU would still be considered a safe place to save.
>What is Capital?
>Capital is the industry metric by which the regulators, the auditors and
>members measure financial soundness. It protects members from loss or sudden
>changes in the business environment that we operate in.
>
>Is it in the best interest of the member to slow the growth of Capital?
>IN MY PERSONAL OPINION......ABSOLUTELY NOT!.
Here is a key point. I do not believe there is anybody who doesn't
want the cap ratio to grow. The question is how fast it should grow,
and what rate of growth is acceptable.
>
>Why?
>1. Even though we have made record improvements in our Gross Capital Ratio
> over the past 2 years, according to industry experts (our auditors,
> our regulators, Board of Directors of other institutions I network
> with, and various articles) tells us that, compared to other credit
> unions our size, we are behind our peers. WE NEED TO BE AT LEAST
> AVERAGE WITH OUR PEERS ON THIS METRIC.
This is a reason to improve the cap ratio, but it is not a valid reason
to make it the sole focus of efforts to improve the credit union. Nor
is it acceptable to adopt a business model which seems focused on getting
this accomplished as fast as possible.
Why? A few reasons. First and foremost, DCU is and remains a safe place
to save and borrow. As the Board is so fond of constantly pointing out,
the cap ratio is the highest in DCU history. That means it was lower
than now prior to the Richard Mangone fraud. DCU was strong enough to
survive the fraud then, and given the years of record earnings, and
record capital growth, it is safe to say that it is even stronger now.
Second, a business model which focuses on growing the cap ratio is
a short-sighted. What will you do after you have achieved an peer
average cap ratio? The relationship banking model seems bent
on encouraging people to either cough up more money, or take their
assets out. Removing assets helps the cap ratio. Is acceptable to
grow the cap ratio by "building down" the membership base?
If DCU is to remain viable, it must continue to attract new business,
and new members. Every member we drive away is one less potential
new business contact in the future.
>
> WHY??....My personal view is>>>>> The DCU is NOT at less risk
> of loss or sudden changes in business factors than its peers.
>
> All credit unions face issues like:
> I. Interest Rate risk and growing concerns of inflation;
> II. Legislative changes, such as taxation;
These have been constant challenges to DCU since its inception. It has
continued to be successfull in this type of climate despite a low capital
ratio, and despite a massive fraud. Recall also that I'm not disputing
the value of having a good ratio, I'm questioning the speed at which
wer're driving toward that goal.
> In addition, we have some DCU specific issues. For example,
> I. Field of Membership. Our sponsor has significantly
> reduced its workforce over the past 2 years. It is
> my expectation that DEC will continue to have work
> force reductions in order to match the new business
> model that the company wants to operate under. This
> poses 2 issues for the credit union: a.) How do you
> keep these members i.e. asset size, b.) Is our loan
> portfolio at risk if folks are laid off and are unable
> to make good on there liabilities.
This is something that has been going on since 1989. DCU is in it's
fifth year of operations in an atmosphere in which the sponsor has been
downsizing, restructuring, and downsizing some more. Throughout all
this, DCU has remained viable, and exclusive of the Mangone fraud, loan
default rates have remained low and, I think, below industry and peer
group averages.
Further, while it may not seem like it from within Digital, the economy
around us - even in New England - is growing. That means more employement
oppportunities for individuals who by fate or choice find themselves
placed outside of Digital. The point is that history has shown DCU
members to be above average in terms of loan quality. That fact should
not be ignored in either determining a target cap ratio, and in
deciding when that ratio should be attained.
> II. Operating risk, such as loss of use of FREE space for
> DCU in Digital Facilities...HOW WOULD THIS CHANGE
> OUR BUSINESS MODEL? The IBM credit unions are dealing
> with the realities of this question.
>
> DON'T MISS UNDERSTAND ME....Digital Equipment Corp is
> a generous and supportive sponsor, AND I AM HOPEFUL THAT
> OUR RELATIONSHIP WILL CONTINUE. THERE HAS NEVER BEEN
> DISCUSSIONS ON THIS SUBJECT!
>
> However, it is a risk BASED ON INDUSTRY TRENDS. And
> it is my responsibility to be PROACTIVE in managing
> against business risk on behalf of the membership.
This cuts two ways. First, DCU does enjoy many benefits of sponsorship
by Digital, the most obvious of which is free use of Digital facilities.
Given these types of benefits, it stands to reason that DCU's operating
costs must be lower than other competitors - especially commercial
organizations that must pay for their facilities like any other enterprise.
I would expect this lowered cost to be reflected in lower than average
rates on loans, and/or higher return on savings.
Next, it is reasonable to have a plan in case sponsorship is reduced
or discontinued. However, should this happen it will (a) not happen
overnight, and (b) it will happen with plenty of forewarning from
Digital management. Given the admitted absence of ANY discussion
by Digital on this topic, it would not appear that our sponsorship
is in any immediate peril. Yes, if sponsorship were reduced or eliminated
a strong cap ratio would be of benefit, but since the issue is not
even on the table, I again question the speed at which we are moving
toward this goal.
All the reasons Lisa cites above are good reasons to continue to grow
capital, and you'll receive no argument from me about the importance of
growing and maintaining the capital base of this credit union.
But given the strength of the strength of DCU in the past, the excellent
record of it's membership to continue to repay debt and be good customers
during the darkets times, and given the record earnings of the past two years,
it seems incongruous to make the main focus of doing business to grow a
single ratio as quickly as possible. Some might even call this narrow
focus a radical focus.
In her remarks, Lisa comments about giving each member $5 and about the
goodwill such a thing might generate. The issue of sharing with the
membership in the success of a credit union is not an issue of goodwill,
it's fundamental to how the credit union is supposed to work. The members
are the owners, and we bring our capital to DCU to save and loan to
others. The credit union invests our funds in a variety of creative
ways and, all things going to plan, makes money based on its investments.
It is reasonable, and in many instances expected, that a credit union
should return a portion of it's earnings to its owners. While detractors
have said that this is something out of the Good Olde Days Long Past,
it is still ongoing at credit unions across the country. A case in point
is the Los Angeles Fireman's Credit Union, who have been returning
a portion of their success to the membership each year for more than
50 years.
Finally, one cannot help but examine the relationship between bonus
dividends and so-called "gainsharing" with employees. Gain-sharing
is nothing more than what regular companies call "profit sharing" and
is a direct cash payment to employees for a successful period of
operations. Given that DCU has seen fit in its compensation plan to
provide gainsharing to its employees, it seems further reasonable
to share with the owners of the cooperative a portion of its success
in the form of bonus dividends or loan rebates. That DCU management
would agree to gainsharing and then call the payment of bonus
dividends irresponsible (see President Cockburns remarks at a recent
board meeting) seems paradoxical at best to me.
Just my opinion,
Chris
|
| 770.13 | | ASE003::GRANSEWICZ | Candidate for DCU Director | Tue Mar 08 1994 18:10 | 28 |
|
Re: .8
�Digital does NOT give us money (active support) but simply
� provides DCU with some space at no cost.
>>
>> Then what is all the hoopla about the subsized DCU and how it should be
>> paying great interest because of it?
Back to the same old out of context quotes Keith??? The "hoopla" has
to do with banks that pay facility costs (which DCU DOESN'T), yet our
rates are nearly the same. But again, being a regular noter in here, I
do think you already knew this.
�Lisa implies that we will
� either be thrown out of Digital facilities or will be charged for
� space.
>>
>> Why not read what Lisa said instead of trying to figure out what she's
>> implying. Once again, I think you are looking for something that isn't
>> there.
At the time Mr. MacNeal, Lisa had posted NOTHING. That is why I asked
her to clarify and I am glad she has. Now please read what I write and
not pretend that I didn't read something that didn't exist.
You never do tire of these games do you?
|
| 770.14 | | COMET::PERCIVAL | I'm the NRA, USPSA/IPSC, NROI-RO | Tue Mar 08 1994 21:25 | 19 |
| <<< Note 770.10 by WLDBIL::KILGORE "Time to put the SHARE back in DCU!" >>>
> What Lisa reportedly said that DCU should be able to "protect itself in
> case Digital ends its sponsorship agreement with DCU."
> She cannot say something like that without causing reasonable people to
> wonder why she said it
One could also properly be concerned that a director of a credit
union would call into question the financial stability of that
same credit union.
Much has been made of a failure on a director to attend a "team-
building" session. I believe that a breach of the fidcuciary
responsibility on the part of a director is a FAR more serious
affair.
Jim
|
| 770.15 | | CSC32::S_BROOK | There and back to see how far it is | Tue Mar 08 1994 23:39 | 120 |
|
Lisa,
IF, according to your words ....
>Each credit union must understand the business factors and risks that
>it operates in. Based on that, the Board set the strategic direction and
>operational goals for the institution. The Board is committed to achieving
>at least the industry average of an 8.5% Gross Capital Ratio by year end 1996.
WHY must DCU meet the Industry average ? Remember, the industry
average is just that ... an average ... some will be lower capitalized
and others will be higher depending on the business environment each
Credit Union operates in.
If you have children, you will remember those wonderful height and
weight growth charts, and all the fuss about comparing where your
child is on the chart in terms of its percentile. If you have a
child following the 10th percentile, then as long as the child
continues to follow relatively well along that percentile, then
there is absoultely nothing to worry about being only on the 10th.
For that child it is totally normal. The charts only provide
the information on averages. Sudden deviations, like falling from the
50th percentile to the 10th in a few months IS something to worry
about.
What level of capitalization did DCU have before the Mangone affair,
and how many actual dollars were lost as a reult of that ? What
change did that produce in the capital ratio? Now with that in mind,
and with the quality of DCU loans and investment, and with the
improved auditing and supervisory controls in place, it seems that
the chance of loss to DCU is significantly lower than ever before.
Therefore, a Capital Ratio similar to prior to the Mangone affair
should be perfectly acceptable for DCU. It may not be for other
credit unions. But this is a part of each credit union evaluating
its own operating position to determine those things that are
correct for it ... like the capital ratio ... like loan and
deposit rates.
I don't understand what the SIZE of the CU has to do with the
amount of the Capital Ratio. The ratio ALREADY reflects the size
of the CU in its own numbers. Far more important than the size
of the CU, for example, is the loan exposure. You would probably
agree that a few Large loans in the hands of a few members is far
more risky than a lots of small loans in the hands of lots of
members, allother things being equal. Therefore, a smaller CU
should probably have a HIGHER capital ratio, should it not ?
(extending this conceot out a bit). Of course it's more complex
than this ... but that is the whole point.
Taking industry averages as goals is only a method of opting out of
an accurate analysis of your own situation.
You offer some concerns about interest rates and so on ... but these
are factors that determine the rates you charge customers. As interest
rates increase, then so does the risk of default ... BUT ...
payments increase as well, and good loan management says that you look
at a clients ability to afford the payments ... so this problem is
self correcting for the larger part.
Let's be honest, there are not the pressures today to force us up to
the high interest rates of the early '80s, not without a lot more
warning.
You seem to imply that because of workforce reductions at Digital,
membership in DCU will drop pro-rata. If DCU was a truly competetive
organization, it would actually hold a significant portion of
laid off members. But as it is there is not reason for laid off
members to stay with DCU, becasue they can get as good a deal (if not
better) down the street at a normal bank.
In terms of Digital not sponsoring DCU through space donation, it would
obviously impact DCU, but as a board, is it not your responsibility in
agreements with Digital to ensure that you have some sort of agreement
giving notice of any changes in that status ?
You say that the member owns the Capital ... this is extremely devious,
because it is not altogether true. If a member leaves DCU tomorrow,
he does not get to take his share of the capital with him. The only
time a member will see any of the capital, is the day DCU is wound up,
and then the question is how much will any member actually see ?
And what about those members who gave to DCU in these best days ? Why
shouldn't they get a sizeable contributin at that time.
No, members don't own the capital. It is being held in perpituity for
the potential benefit of the existing members at any time. From time
to time, we will benefit from it by not taking losses directly in our
pocket books, unlike the Underwriters at Lloyds (the insurers), who take
the hit every time Lloyds has to pay out.
For us, the capital ratio is a form of insurance, instead of self-
insurance. Having a greater amount of insurance than is really
needed is poor judgement, because you are paying for more than
is really needed.
I have seen no justification that says teh industry average of 8.5%
is the right average for DCU.
(As an aside, as DCU's average goes up, how much impact will that
have on the industry average ... after all, we are a part of that
average! We will create our own moving target!!!)
Apart from the actual setting of the capital ratio goal, there
is also the matter of how to get there. The current relationship
banking model is certainly one way of doing that ... but a highly
unpopular one and a potentially counter-productive one at that.
There are other methods that may put DCU at a little more risk
exposure, such as no fees and better than average interest rates,
that serve to increase loans and deposits. Moreover, improving
services to get more Digital employees to use DCU will also
work towards increasing the capital ratio too!
So, bottom line is that I do not see that the goals have been set
with DCU in mind ... but rather some arbitrary norms, and secondly
that of all the ways to achieve those goals, one of the poorest has
been chosen.
Stuart
|
| 770.16 | | ASE003::GRANSEWICZ | Candidate for DCU Director | Tue Mar 08 1994 23:40 | 116 |
|
RE: .9
Thanks for coming in and explaining/clarifying your statements. I
agree with everything Chris has stated but want to add a few more
remarks.
>Each credit union must understand the business factors and risks that
>it operates in.
I agree completely. And I see a major risk being ignored, namely a lack
of membership loyalty and a negative approach to many members of
this credit union. Please note that loyalty and approach are NOT numbers
yet can make or break any business.
>Capital is the industry metric by which the regulators, the auditors and
>members measure financial soundness. It protects members from loss or sudden
>changes in the business environment that we operate in.
Yes, but capital is not the ONLY protection against loss. Proper
controls, policies (enforced) and supervision is the BEST protection.
You NEVER want to get to the point of using your equity. If you do,
then there is a problem somewhere in the system. Right now all systems
and controls are in place and are strictly adhered to and undergo
regular review.
> All credit unions face issues like:
> I. Interest Rate risk and growing concerns of inflation;
Our investments and portfolio undergo INTENSE scrutiny on a regular
basis to ensure that we are within set guidelines to minimize risk in
these areas. Much of our portfolio is variable rate and/or short term.
We are not in a hold position on low rate long term loans. Again,
proper controls are in place.
> II. Legislative changes, such as taxation;
Well, quite frankly if credit unions stuck to their roots and didn't
act like banks, I don't think taxation would be an issue. But many
credit unions can't be distinguished from a bank so of course
politicians don't see the distinction, because it has been abandoned.
Bonus dividends and interest refunds are a vital and important part of
maintaining the credit union distinction.
> In addition, we have some DCU specific issues. For example,
> I. Field of Membership. Our sponsor has significantly
> reduced its workforce over the past 2 years. It is
> my expectation that DEC will continue to have work
> force reductions in order to match the new business
> model that the company wants to operate under. This
> poses 2 issues for the credit union: a.) How do you
> keep these members i.e. asset size, b.) Is our loan
> portfolio at risk if folks are laid off and are unable
> to make good on there liabilities.
EXACTLY! We need to do whatever we can to keep and grow the
membership. Is "relationship banking" a longterm viable
means of doing this?
As for risk to our loan portfolio, members can rest VERY EASY. Even in
the worst periods of layoff we were nearly half of budget and I
believe we were still lower than our peers! Any wonder why our members
are welcomed by our competition? But that is not all. DCU allocates a
loan loss allowance to cover expected loan losses. Last year the fund
was OVERFUNDED and the monthly amount allocated to the fund was even
reduced.
> II. Operating risk, such as loss of use of FREE space for
> DCU in Digital Facilities...HOW WOULD THIS CHANGE
> OUR BUSINESS MODEL? The IBM credit unions are dealing
> with the realities of this question.
If this occurs then DCU would obviously have to adjust its OPERATIONS.
DCU's equity should only be a temporary buffer until these adjustments
were made. But I'll say one thing, if this does happen DCU's equity
will not be its salvation. DCU's membership base and its loyalty WILL
be. Unfortunately, we are not investing in that intangible asset.
We'll have a life vest that won't inflate.
>2. Who OWNS the Capital?....THE MEMBER!
> How do we maximize the return on Capital for the member?
>
> Some say it is the giving of $5, as an example, back to every member
> and the "goodwill" it would promote.
But what if they WANT their $5 (or whatever) and know better than us
what they can do with it? As owners of a cooperative, aren't they
entitled to a share of the pie, along with DCU and DCU employees?
> My personal belief is, given that we are still below the average gross
> capital ratio for credit unions our size, member's capital is maximized by
> pooling those funds on the balance sheet to further protect the members
> investment and interest in the cooperative.
DCU members are WELL protected and will continue to be well protected
with a slower, steady increase in our capital ratio. We need to also
protect our most valuable investment, THE MEMBERSHIP. Simply watching
a capital ratio number will NOT do this.
> In addition, I believe that by pooling capital the DCU can offer more and
> more competitive rates on both savings and loans so that members benefit
> and they will have greater incentive to use additional products and
> services of the cooperative. IN THAT WAY THE COOPERATIVE IS STRENGTHENED
> AND ITS OWNER'S INTEREST MAXIMIZED.
There's that "competitive rates" again. Who are being judged against?
And why wouldn't members use more products if they know that they
may receive some of their money back at the end of the year? Sure, set
the rates at "competitive" to make sure you cover your expenses and
put some aside, but RETURN SOMETHING TO THE MEMBERSHIP.
A credit union that invests in its membership has a membership that
will invest in the credit union.
|
| 770.17 | | CSC32::S_BROOK | There and back to see how far it is | Wed Mar 09 1994 00:31 | 4 |
| Oh by the way Lisa ... good to see you contributing here ... I hope you
will keep it up ...
Stuart
|
| 770.18 | | STROKR::dehahn | ninety eight...don't be late | Wed Mar 09 1994 09:12 | 39 |
|
Lisa,
Thank you for expanding on my synopsis of our conversation that I wrote in the
basenote. The raedership should know that all of the points Lisa made in .9
were discussed to some degree in our phone conversation.
Still, the question remains: has DCU studied what effect a reduction in
sponsorship would have on the operation of the credit union? Should this be
done, and by whom?
General questions for the BOD candidates:
On the subject of the capital ratio, I agree with the principle that building
the capital ratio will make us a stronger credit union. However, our growth
appears to be in short, quick, easy-money type of vehicles like mortgage
resale and promotions such as the auto loan sale. While they do generate
revenue, I question that they be the basis of a long term strategy for
improvement of the credit union as a whole, not just the capital ratio.
I haven't seen or heard anything from the DCU or DCU BOD on any longer term
vehicles (such as loan rate reductions, savings rate increases, rebates) that
would make DCU best in class. It is the lack of this strategy that keeps most
of my liquid assets in a bank that pays higher interest, has lower fees,
and doesn't force me to comply with a banking model that I find highly elitist
and discriminatory.
The capital ratio average is a moving target. It has been stated that the goal
is to grow it to 8.5% by 1996. If this goal is reached at or before that time,
will the goal be revised?
Is there a long term strategy for the DCU to become best in class? How does
the DCU define best in class? How do the DCU BOD candidates define best in
class?
These are legitimate questions that I encourage Lisa and the BOD candidates to
answer here. Thanks for participating in this forum.
Chris
|
| 770.19 | | PACKED::COLLIS::JACKSON | DCU fees? NO!!! | Wed Mar 09 1994 09:16 | 5 |
| Thanks for your input in here, Lisa. It was a well-thought
out note. (I disagree with the priorities it states, but
it does make it easier to understand your position.)
Collis
|
| 770.20 | | PATE::MACNEAL | ruck `n' roll | Wed Mar 09 1994 12:07 | 5 |
| Some good points, Chris. DCU does indeed appear to be very financially
stable, but one of the major complaints in here has been over lack of
competitiveness. If the capital ratio were stronger, would DCU be able
to be more competitive/best in class with regards to interest on
savings on loans?
|
| 770.21 | | STROKR::dehahn | ninety eight...don't be late | Wed Mar 09 1994 12:22 | 36 |
|
> Some good points, Chris. DCU does indeed appear to be very financially
> stable, but one of the major complaints in here has been over lack of
> competitiveness.
Are you asking me, the DCU BOD, or the conference participants?
The impression I'm getting is that the DCU management and some of the DCU BOD
members believe that DCU is already best in class. I wholeheartedly disagree.
I'd like to see their metrics. I've committed to providing a few of my own
to Lisa.
To me there's a HUGE difference between simply being 'competitive' and by
being 'best-in-class'. I'm not expecting DCU to be THE BEST, numero uno,
but there's no reason why DCU can't be. Being just 'competitive' doesn't cut
it when members have so many other attractive choices.
> If the capital ratio were stronger, would DCU be able
> to be more competitive/best in class with regards to interest on
> savings on loans?
The basis of this argument is that by increasing the capital ratio, you lower
the cost of funds, and thus can lower loan interest rates. Fine in principle.
But the current situation at DCU is that they have to use promotional agents
to attract borrowers. Look through the financial reports in the minutes. Just
about all of the money loaned out is going to auto loans and credit cards.
Mortgages are sold on the secondary market. How about the rest of the loan
offerings? We don't see figures on those, probably because they're dismal.
If DCU lowered the loan interest rates across the board, as part of a long
term 'let's become best-in-class' strategy, they wouldn't have to be so
concerned about cost of funds.
The long term strategy is what I'm concerned about.
Chris
|
| 770.22 | | PATE::MACNEAL | ruck `n' roll | Wed Mar 09 1994 12:33 | 26 |
| > Some good points, Chris. DCU does indeed appear to be very financially
> stable, but one of the major complaints in here has been over lack of
> competitiveness.
�Are you asking me, the DCU BOD, or the conference participants?
I was referring to Chris Gilett's comments in that statement.
As to the question which followed, I'd be interested in reading
anyone's thoughts on it.
�The basis of this argument is that by increasing the capital ratio, you lower
�the cost of funds, and thus can lower loan interest rates. Fine in principle.
�But the current situation at DCU is that they have to use promotional agents
�to attract borrowers.
Is this a chicken and egg thing? If increasing capital ratio allows
lower loan rates, then doens't capital ratio have to be built before
only special promotions will work to attract more loans?
�If DCU lowered the loan interest rates across the board, as part of a long
�term 'let's become best-in-class' strategy, they wouldn't have to be so
�concerned about cost of funds.
Lisa mentioned better rates, I think Chuck alluded to them as well.
I agree, Chris, let's see more information on this.
|
| 770.23 | | STROKR::dehahn | ninety eight...don't be late | Wed Mar 09 1994 13:09 | 26 |
|
> Is this a chicken and egg thing? If increasing capital ratio allows
> lower loan rates, then doens't capital ratio have to be built before
> only special promotions will work to attract more loans?
No it shouldn't, it's a simple concept called prioritizing risk. If you're
willing to take a bit more risk to offer a bit better services than your
competition, then the capital ratio shouldn't be an issue. DCU isn't willing
to take that risk, and it appears to be costing them their customer base.
> Lisa mentioned better rates, I think Chuck alluded to them as well.
> I agree, Chris, let's see more information on this.
Which comes back around full circle to my original question that prompted
the phone call from Lisa. What about the timetable? When will we see best
in class products from DCU? When the CR hits 8.5% in 1996 or sooner? When
the membership base shrinks by xx%? All I'm hearing about are short term
promotions (another auto loan sale, etc). Where is the long term strategy?
I don't expect this from my bank (but if they're public, I can get the info)
but I most certainly expect this kind of info from a Credit Union of which
I am part owner...and I'm not talking about squeeky kleen management speak
like what's in DCU Network. Save the spin. Give us facts. We're intellegent
enough to make decisions based on them.
Chris
|
| 770.24 | Best of both worlds! | AWECIM::MCMAHON | Living in the owe-zone | Wed Mar 09 1994 13:51 | 7 |
| I find it interesting that in Lisa's note, that continual mention is
made of comparisons to our peers in the Credit Union industry (gross
capital ration, legislative changes, interest rate risk, field of
membership and operating risk), but when it comes time to set interest
rates and services, DCU compares itself to local BANKS.
Just the best of both worlds, I guess!
|
| 770.25 | It is NOT automatic | ASE003::GRANSEWICZ | Candidate for DCU Director | Wed Mar 09 1994 18:49 | 16 |
|
RE: .20
> If the capital ratio were stronger, would DCU be able
> to be more competitive/best in class with regards to interest on
> savings on loans?
Not unless there was a commitment by those that set the rates to price
them as you have stated above.
If bonus dividends and interest rebates WERE given then DCU WOULD have
an advantage over the competition, which does not give them
(or actually gives them to their stockholders). The rest of the
profits would be set aside in equity (to steadily increase the capital
ratio).
|
| 770.26 | What is the "adjustment strategy"? | ASE003::GRANSEWICZ | Candidate for DCU Director | Wed Mar 09 1994 19:09 | 23 |
|
RE: .22
> Lisa mentioned better rates, I think Chuck alluded to them as well.
> I agree, Chris, let's see more information on this.
Mentioning them and alluding to them is one thing. Actually pricing them to
be better than our competition is quite another thing. First, the
"class" in question will be BANKS, since they are our "competition".
Already the comparison is bogus. We are a credit union with different
cost structures and no tax liability. We're already starting off
higher than we should be.
When I have asked about pricing our loan products below our competition I
was told we can't compete on price alone. Right now if we increased
our savings rates above others, members might bring deposits to DCU,
which may drive the capital ratio DOWN (gasp). The bottom line is that
the MARKET drives interest rates. The adjustment to those rates is the
STRATEGY part of it. Right now our STRATEGY is to be "competitive"
(close to the banks), not "best". The adjustment strategy, not market
swings, is what needs to be focused on since rates may decline (or
increase) due to market conditions.
|
| 770.27 | | AOSG::GILLETT | Candidate for 1994 DCU BoD Elections | Wed Mar 09 1994 19:40 | 17 |
|
re: .20 & .25
Pricing strategy is an issue too. Consider that all DCU is doing these
days in the real estate biz is reselling the loans it's writing. Sooo,
it stands to reason there's not a heck of lot of room for DCU to be
better than the competition if it resells everything.
While I'm not advocating that we load up on a bunch of low-interest,
long-term fixed rate mortgages, but it seems to me that there's room
to discuss a different approach whereby DCU *can* do better on real
estate loans than it's competition.
I would much prefer to see more of our millions invested in our
membership rather than simply at EasCorp or as overnights on the wire.
Chris
|
| 770.28 | Focus on only the capital ratio is not appropriate | SMAUG::GARROD | DCU Board of Director's Candidate | Wed Mar 09 1994 19:50 | 186 |
|
Re:
>Note 770.9 DCU - could it be self sufficient? 9 of 26
>LEDS::ROSS 80 lines 8-MAR-1994 16:09
>--------------------------------------------------------------------------------
Lisa, first of all I'd like to welcome you to the debate on where the
credit union should be headed. I see it as very positive when current
board members choose to share their views in such a manner.
>Each credit union must understand the business factors and risks that
>it operates in. Based on that, the Board set the strategic direction and
>operational goals for the institution. The Board is committed to achieving
>at least the industry average of an 8.5% Gross Capital Ratio by year end 1996.
We know this. But no one has ever explained why it is so important to reach
this capital ratio. Especially when the sole concentration on it is
limiting other options that the DCU could follow in order to improve
member service.
Re:
>What is Capital?
>Capital is the industry metric by which the regulators, the auditors and
>members measure financial soundness. It protects members from loss or sudden
>changes in the business environment that we operate in.
There are better ways to deal with these two issues. Tight internal and
external controls should protect the institution from unexpected
losses. This of course was what was sorely lacking under the
Mangone/Steinkrauss administration. As for changes of business
environment I feel this is a non issue. The credit can and does manage
its exposure to interest rate changes. The membership base has shown
itself to be an extraordinary good risk. Writeoffs are always well
below budget. Also the variance in loan writeoffs over the years has
been very small (if we ignore for a moment the extraordinary instance
of investing in cape cod real estate instead of the membership).
The credit union is also one of the larger credit unions. Because loans
to any one individual are capped at a relatively low level there is no
concentration of loan risk. Also the credit union is precluded from
investing in commercial real estate. All of which somewhat isolates the
CU from changing business circumstances.
>Is it in the best interest of the member to slow the growth of Capital?
>IN MY PERSONAL OPINION......ABSOLUTELY NOT!.
I disagree of course which is one of the main reasons I am seeking a
position on the board.
>Why?
>1. Even though we have made record improvements in our Gross Capital Ratio
> over the past 2 years, according to industry experts (our auditors,
> our regulators, Board of Directors of other institutions I network
> with, and various articles) tells us that, compared to other credit
> unions our size, we are behind our peers. WE NEED TO BE AT LEAST
> AVERAGE WITH OUR PEERS ON THIS METRIC.
We may be behind our peers but look at the delta change in capital
ratio. That is what is wrong. The capital is being grown too fast.
It is being done at the expense of the membership. It also appears to
me that one of the mechanisms of doing this is to scare away deposits
by offering really poor rates. Makes the capital ratio look great but
in the long run it'll prevent members from borrowing due to lack of
assets.
> WHY??....My personal view is>>>>> The DCU is NOT at less risk
> of loss or sudden changes in business factors than its peers.
See discussion above.
> All credit unions face issues like:
> I. Interest Rate risk and growing concerns of inflation;
Again I don't see this as an issue to to the relative short term
maturity of the loans.
> II. Legislative changes, such as taxation;
Maybe there is only a risk of this because credit unions such as DCU
seem to want to be banks (relationship BANKING for instance). Also the
comparison of rates with Banks in the Network Brochure. If credit
unions spent more time treating their members as shareholders rather
than customers the distinction of a credit union from a bank and hence
the no taxation status stands a better chance of surviving.
> In addition, we have some DCU specific issues. For example,
> I. Field of Membership. Our sponsor has significantly
> reduced its workforce over the past 2 years. It is
> my expectation that DEC will continue to have work
> force reductions in order to match the new business
> model that the company wants to operate under. This
> poses 2 issues for the credit union: a.) How do you
> keep these members i.e. asset size,
I'm confused here. The more assets that walk out the door the higher
the capital ratio. That seems to be DCUs current policy which I think
is wrong. Grow the business don't manage to a meaningless metric.
> b.) Is our loan
> portfolio at risk if folks are laid off and are unable
> to make good on there liabilities.
Another argument I disagree with. There have been massive layoffs at
Digital over the last few years. Loan defaults are still minimal and
always under budget. There is no reason to expect this to get any
worse. If it was going to it would have done before.
> II. Operating risk, such as loss of use of FREE space for
> DCU in Digital Facilities...HOW WOULD THIS CHANGE
> OUR BUSINESS MODEL? The IBM credit unions are dealing
> with the realities of this question.
This would not be an overnight event. As far as I understand there
isn't even any talk of this at the present moment. And since John Sims
described the credit union as an "important employee benefit" (I think
I have the wording correct) I would think that if such a thing were to
occur it would signal really bad problems with Digital itself. Also
the credit union space that Digital lets the DCU use is really not
much of an incremental expense. Note also that Digital has shown that
it closes buildings whether a CU office is there or not. There is just
nothing for Digital to gain by making the CU pay for its space.
> DON'T MISS UNDERSTAND ME....Digital Equipment Corp is
> a generous and supportive sponsor, AND I AM HOPEFUL THAT
> OUR RELATIONSHIP WILL CONTINUE. THERE HAS NEVER BEEN
> DISCUSSIONS ON THIS SUBJECT!
>
> However, it is a risk BASED ON INDUSTRY TRENDS. And
> it is my responsibility to be PROACTIVE in managing
> against business risk on behalf of the membership.
While I agree that a board should be proactive in considering business
risk I feel this risk has a low probability of happening and if it did
there would be plenty of notice.
>2. Who OWNS the Capital?....THE MEMBER!
> How do we maximize the return on Capital for the member?
>
> Some say it is the giving of $5, as an example, back to every member
> and the "goodwill" it would promote.
>
> My personal belief is, given that we are still below the average gross
> capital ratio for credit unions our size, member's capital is maximized by
> pooling those funds on the balance sheet to further protect the members
> investment and interest in the cooperative.
The issue is not bonus dividends per se. The issue is how does the DCU
serve its members. There are people who just do not use the CU as their
primary financial vehicle. The reasons for this are many. I think it
would the CU better to survey members who leave, not those who are
here. We have all heard stories of how it one can get much better deals
elsewhere. Fix those problems first.
> In addition, I believe that by pooling capital the DCU can offer more and
> more competitive rates on both savings and loans so that members benefit
> and they will have greater incentive to use additional products and
> services of the cooperative. IN THAT WAY THE COOPERATIVE IS STRENGTHENED
> AND ITS OWNER'S INTEREST MAXIMIZED.
This seems illogical to me. The DCU currently is swimming in deposits.
It can;t loan them all out. Instead it parks them in low interest
bearing investments. The size of the capital ration may impact the
rate on these investments slightly. But a much better way to improve
income would be to work out why members aren't borrowing money. Just
maybe the DCU is too hard to deal with and/or it imposes too many
bizantine rules and regulations like "relationship banking". Loaning
out to the members will always earn a better rate than having
substantial money around that can't be loaned out.
In my view this whole focus on the capital ratio is all wrong. My
speculation is that this is happening because the board has erroneously
decided to measure Chuck Cockburn on growing the capital ratio. It would
be far better to measure the president on more difficult things to achieve
such as how to be a best in class credit union. How about sending
Chuck to the LA Firemans Credit Union (see another note) to learn how a
successful credit union can and should be run. I believe that with this
election the membership has an opportunity to make our credit union the
DCU far more like the LAFCU rather than more like a local faceless bank
which seems to be the current direction.
Dave
|
| 770.29 | | PATE::MACNEAL | ruck `n' roll | Thu Mar 10 1994 12:36 | 14 |
| �Pricing strategy is an issue too. Consider that all DCU is doing these
�days in the real estate biz is reselling the loans it's writing.
There have recently started servicing this loans as well.
�Sooo,
�it stands to reason there's not a heck of lot of room for DCU to be
�better than the competition if it resells everything.
FWIW, when I looked at mortagages a couple of years ago, the rate of
the mortgage I took with DCU was 0.5% lower than the rates at the
mortgage company that the loan was sold to. Could it be lower if DCU
didn't have to sell it? Probably. Is it worth the risk to DCU? A
question worth exploring.
|
| 770.30 | | VMSSG::STOA::CURTIS | Dick "Aristotle" Curtis | Mon Mar 14 1994 17:07 | 17 |
| .9:
� In addition, we have some DCU specific issues. For example,
� I. Field of Membership. Our sponsor has significantly
� reduced its workforce over the past 2 years. It is
� my expectation that DEC will continue to have work
� force reductions in order to match the new business
� model that the company wants to operate under. This
� poses 2 issues for the credit union: a.) How do you
� keep these members i.e. asset size, b.) Is our loan
I submit that one thing that can counteract "keeping members" is to
impress them negatively by making changes which cost them money,
particularly when the explanations offered for making these changes
fail to persuade.
Dick
|