Wednesday, October 8, 2008

Rate Cut & Benefits of Credit Unions & Bank That Will Be Around

Okay, so I was early on the global rate cut, by a day. Notice that it did not help? The Fed is firing bullets into the darkness now. This won't be the last domestic cut...I can see them easing again at the end of this month.

Almost every call I take at some point winds around to..."So are you guys going to be around?"

I work for a credit union. Realize that the business model of a credit union is different than that of a bank. Most banks, have to make a profit for their stockholders. They make big bets to make more money (traditionally) so that they can maintain a reasonable level of profitability. Asset classes are falling and if a bank have to raise capital in a market where capital is not available(see yesterdays post)...well we've seen how that ends (think IndyMac, WaMu, and Wachovia). Credit Unions are there for the shareholders, those who actually have their money on deposit with the credit union. It is much more simple business. Credit Unions do not take the same risks for banks. The very nature of the credit union and who it serves, makes the relatively safer bet than some banks.

So, do I think my credit union will make it through this. Absolutely. The only thing that I can see tripping up where I work is large job losses in our area. I don't think it is too big of an issue as my credit union services teachers and medical professionals for the most part. It is a pretty safe bet those jobs aren't going anywhere. But you never know.

As for banks, if you're not at Bank of America (BAC) by the one can be surprised by their price dive. They BOUGHT COUNTRYWIDE and MERRILL LYNCH, Wells Fargo (WFC) which is the only one of these names that I would consider adding (which I'm not)and THEY BOUGHT WACHOVIA (but I bet you they end up with the GOOD part of Wachovia). Or JPMORGAN Chase (JPM), which has purchased BEAR STERNS and WAMU. And maybe Citi...but they have their own problems. I think they fought so hard to get their piece of Wachovia to be in the "too big to fail" category.

Outside that fantastic four, I can't see who will still be around. You are going to have smaller players that will remain because they were much smaller players and didn't go whole hog on the mortgage orgy at the turn of the century.

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