Toronto – Last month, members of Hamilton-based Nasco Employees' Credit Union stopped being members of the Nasco Employees' CU.
On January 6th, Nasco Employees' CU was purchased by another Hamilton-based Credit Union: Prime Financial Savings.
It was a fate that a number of Credit Unions in Toronto and Ontario have suffered since 2007 thanks to the global economic crisis. Although business pages in Canada mostly focus on the Big-Five banks - Toronto-Dominion, Royal Bank, CIBC, Bank of Montreal and the Bank of Nova Scotia - credit unions have faced their own series of challenges and adjustments.
In August of 2009, I went close my account at a small local credit union on Bloor St. But something had happened to St. Mary’s Credit Union since the last time I used the branch: it was no longer St. Mary’s.
St. Mary’s had been purchased by Ottawa based Buduchnist Credit Union two months before.
Sources inside the credit union suggested that it had withstood a series of shocks due to the financial crisis. Fearing that one more shock could have put them out of business, the bank began talks to be purchased by Buduchnist Credit Union.
When asked if this was the case, Oksana Prociuk, CEO of Buduchnist Credit Union said she did not wish to comment and immediately hung up the phone.
No Jobs, No Credit Unions
Statistics from the Deposit Insurance Corporation of Ontario website paint a rough picture of how credit unions in the province have faired during the credit crisis. Ontario Currently has slightly under 200 Credit Unions or Caisse-Populaires. Nine Ontario Credit Unions were liquidated in 2006 (liquidation also includes dissolved, purchased or amalgamated credit unions). In 2007 and 2008, when the credit crisis was in full swing, that number jumped to seventeen each year before subsiding to eight in 2009.
Statistics from Credit Union Central of Canada’s third quarter results, show a similar pattern; while numbers of credit union members are up .5% Canada-wide since the end of 2008, Ontario has seen a 1.4% drop in the same time frame. The number of credit unions and their branches has also gone down more the national average.
Art Chamberlain, Media Relations Manager for Central 1 Credit Union says the downturn hit a variety of Ontario credit unions in a much different way than Canada’s major banks. Employment and growth have gone down sharply in Ontario, so instead of losing money on derivatives and bad investments, some credit unions lost money on the major casualty of the recession: people.
“The core of our business is straight forward: taking in deposits and putting out mortgages and personal lending (and a growing amount of small business lending). When there was a downturn, people lost their jobs and the low interest rate environment has not been very great for a number of years, so the spread on lending money has not been great. It’s been a challenging time for small credit units. Our operating costs have been a lot higher (than banks) and our fees have been a lot lower,” he said.
Ron Hodges, Vice President of Finance for the Toronto-based Italian Canadian Savings & Credit Union Limited, says that small-town credit unions suffered greatly because of their member’s job losses. “Some of the credit unions are small and are set up to be a credit union for a specific plant. The plant closes and when that plant closes, it makes it difficult for the credit union not to close down,” he said.
Hodges Credit Union, Italian Canadian Savings took over some staff, deposits and the lease of the Portuguese Canadian Credit Union (PCCU), which was liquidated in 2009. According to Hodges, “The PCCU ran into financial difficulties; we tried to ensure that the Portuguese community continued to be served. “
Sources from St. Mary’s suggested that the PCCU ran into trouble from the credit crises however Hodges was unaware of the reason for the PCCU liquidation and the Deposit Insurance Corporation of Ontario said they could not comment because the mater was before the courts.
“A stabilizing force in the economy”
Credit unions in Toronto face a number of challenges trying to compete to Canada’s dominating financial institutions.
“We don’t have a huge visual presence,” laments Chamberlain. “Market penetration is not great. We’re stronger in smaller towns around Ontario. The big banks are located here. The other challenge we face is trying to get our message around in an expensive media market.”
In addition to the slew of ads, Chamberlain says banks also generate natural advertising through having branches and ATM’s in full view around Toronto. “We do have access to a fair number of ATMS but they are not all branded as Credit Union ATMs and the same thing with Credit Unions themselves…we don’t get the subliminal advertising around branches on street corners.”
The relationship with suffering Ontario workers may have hurt deposits, but it also forms the backbone of credit union lending.
“Our decisions around how we treat people and loans we give are based on a relationship basis. A lot of credit unions are aware and active on community economic development, helping community groups etc.,” says Chamberlain. “We didn’t get caught up in the huge issues that caused problems with the US and big banks here because we weren’t involved in subprime mortgages here. Credit unions are a stabilizing force in the economy. There’s a committee working together, we’ve had a media campaigns. Behind the scenes there’s been a network of credit unions to help out small businesses. Especially when times are tough. “
By focusing on the boring, community-based lending, credit unions have managed to avoid the worst of the economic crisis that affected thousands of financial institutions worldwide. “They are less exposed than the banks. They are not international, which is both protective and risky in a more difficult area,” says Jim Maxwell Chief Administrator and Financial Officer for the Deposit Insurance Corporation of Ontario (DICO).
According to Maxwell, overall, credit unions have been able to turn to amalgamation, fusing, buying each other out, etc. to protect themselves.
“If you look at the system as a whole, there is a consolidation of the system and growth. The system has grown at 5% over the last 5 years, you can't look at the number of institutions, because of mergers branches are staying the same.”
Statistics from Credit Union Central of Canada show that the number of credit unions and branches has decreased Canada-wide since 2007. Ontario seen both decrease since the end of 2008, however assets, savings and loans have increased in both the Ontario and Canada.
Several Ontario Credit Unions have fused together in the last few years. Amalgamation also produced Central 1 Credit Union in 2008. Central 1 was the fusion between Ontario and B.C. ‘Central’ Credit Unions. Central Credit Unions act as "umbrella organizations," for their regions, promoting the interests of their member Credit Unions and offering overall services and liquidity (cash to maintain operations). Similar fusions are planned for “Central” Credit Unions in the Maritime Provinces.
According to Maxwell, the trend to larger institutions increases the ability to hire good staff and use more-efficient, cheaper systems. At the same time Maxwell acknowledges that bigger unions pose a challenge for trying to maintain their base in the communities that they serve.
Meanwhile, Prime Financial Savings, the Hamilton Credit Union that purchsed Nabasco Employees CU, has already experienced first-hand the issues with amalgamation and the credit crisis.
In their 2008 Annual Report, CEO William Clark explains why Prime Financial Savings suffered a major loss:
“This is attributable to costs associated with the merger of Credit Union Central of Ontario and British Columbia Central into a new organization called Central 1. This merger is the culmination of years of effort to rationalize the internal structures of the Credit Union System across the country.
“To facilitate this merger Ontario Credit Unions purchased certain investments from Credit Union Central of Ontario. These investments have been impacted by the general deterioration of markets across North America,” he said.
Correction: In an original version of this article, it was stated that Prime Financial Savings had been purchased by Nabasco Employees Credit Union. Prime Financial Savings, was in fact the purchaser of Nabasco Employees CU.