When an employer – Harvard University, for instance – announces financial difficulties and potential layoffs, it hits different people in different ways.
Employees fret, students and alumni wince or protest. But the Harvard University Employees Credit Union also gets hit where it lives – in the pocketbooks of its members.
“We are tied to the life of the university,” said credit union president and CEO Gene Foley. “We are impacted by it, and we’re trying to do things to help members who are going through this process.”
Harvard has thus far not made large-scale layoffs, although the university’s diminished endowment has prompted cutbacks that will affect personnel. Other institutions, such as the state of Massachusetts, the Massachusetts Bay Transportation Authority and various municipalities, have announced large-scale layoffs. And like Harvard, they also have credit unions dedicated specifically to their employees.
Credit unions, like many financial institutions, are already facing a tough road as high unemployment forces even low-risk borrowers into default. Massachusetts’ average delinquency rate – that is, delinquencies as compared to all loans – was 1.8 percent in 2008, accelerating over the past few years as mortgage defaults ramped up, according to public information provided by Ceto and Associates, a Georgia-based consultancy.
Many credit unions’ memberships are still closely bound to specific employers or industries, so a few massive layoffs in the wrong places do much greater harm to them than other, more broadly based financial institutions.
For a very public example of the types of challenges such credit unions face, look to the state of Massachusetts. Officials have announced massive layoffs to deal with enormous budget shortfalls, which is bad news for the Massachusetts State Employees Credit Union. Credit union officials were unavailable to speak for this article as of press time, but the National Credit Union Administration’s financial reports and asset analysis shows some rocky trends to contend with.
“These guys have some real points of concern,” said Claude Hanley, partner with Capital Performance, a Washington, D.C.-based consultancy.
Membership is down by 8.6 percent as of the first quarter of 2009, he noted, and this credit union, like many others, hasn’t been profitable since September.
Perhaps most troubling, the Massachusetts State Employees Credit Union is seeing a spike in loan delinquencies. Its ratio of delinquencies compared to total loans nearly doubled from 1.89 to 3.60 percent from March 2008 to March 2009. Delinquencies were up by 1.37 percent for the entire industry as of December, Hanley said, but this credit union’s was already higher than 3 percent at that time – well ahead of the pack.
“Does that mean it’s going out of business? No. It just means it’s sick,” he said.
The CU in question is extremely well capitalized and likely miles away from insolvency, he said – and depositors can rest easy knowing that federal safeguards will keep their money secure.
Layoffs among the state employees – which appear inevitable – will hurt the credit union’s ability to cut its delinquencies back to more comfortable levels, Hanley said. But it’s important to keep things in perspective: it’s impossible to predict exactly how the unemployment picture will change the credit union. In the meantime, its members’ money is still protected.
Not Just The Globe’s Woes
Still, the financial landscape is far from comfortable for many institutions and their members. The Boston Globe Employees Credit Union, which had about 2,300 members, was merged with the Metro Credit Union last quarter after years of losing money and seeing its members laid off from the crippled newspaper.
The Harvard employees’ credit union, for its part, still has low delinquency rates of about .2 percent as of the first quarter 2009, and Foley said it plans to offer financial counseling to members with troubled loans. On the bright side, he said, “deposits have been coming in hot and heavy” because of consumers’ mistrust of beleaguered commercial banks. Deposits have gone up substantially as members put more of their money in credit unions, which are seen as more tight-knit and trustworthy.
“In tough times, the money actually comes in,” he said.
