... just asking for it?
[Out of control wildfire reported in "Comments"! Use caution.]
From the CUTimes [1/3/2025]: "WASHINGTON—President Trump’s announcement of Ken Kies as assistant Treasury secretary for tax policy should draw the attention of credit union trade groups, analysts are saying." Kies has long held: " Unlike other financial institutions like banks and thrifts, credit unions do not pay corporate taxes on their income. Credit unions have evolved to become large financial institutions which provide services that are identical to their taxpaying competitors. In order to level the competitive playing field in the banking industry, all credit unions should pay corporate income taxes.”
The banking industry has long objected to the corporate tax exemption for credit unions. Certainly begins to sound reasonable if credit unions have in fact "evolved to become large financial institutions which provide services that are identical...". But SECU, in its operations, purpose and mission, has long adhered to the traditional credit union model - particularly a limited field of membership; the avoidance of commercial/business lending and mergers; a focus on serving all members (even of "modest means") equitably; and staying true to its not-for-profit structure. Until 2021`... when the "new/new" arrived.
If SECU is operated responsibly, on a true not-for-profit basis; the tax exemption may not make much difference. Why? Because all "profits" are returned to the members through better rates on savings; and, members pay the state and federal income taxes on those interest earnings - same as the banking industry.
But when bankers and government officials see SECU pushing open membership, growth-for-growth's sake, risk-based and business/commercial lending... support can quickly wane.
Then, to make matters worse, our adversaries listen to SECU brashly brag and boast about having "the most profitable year ever" in 2023, when $587 million in earnings - not needed to maintain strong, statutory reserve requirements - were withheld and not paid out to the membership.
Let's see what the corporate tax bill could have been on $587 million in "excess profits". The federal tax rate is @21%, the State tax rate @5%. A combined tax rate of 26% would have cost SECU members - that means you and me - $152 million ($587 mil. x 26%).
Is the SECU Board aware of the substantial risks it is taking? Unforced strategic errors can be costly to the member-owners...
... is this covered in our "Strategic Plan"?
Hope the SECU Board and Administration read the CU press. Then that they think about the implications of policies and legislation they support.
ReplyDeleteThe Laws of Unintended Consequences ...
ReplyDeleteWill it help borrowing money from tax payers, not because it was needed, in order to game the system?
ReplyDeletehttps://youtube.com/watch?v=B7e43qxuW8w
20405-20612
Apparently it was “legal”, who actually thinks this was ok? Doing the right thing?
12:18pm SECU paid off its $5 billion loan from the Fed in November and doesn't seem in danger of collapse without it... imagine that.
DeleteFleecing the Fed to make money is an interesting "business practice"... definitely a "new/new" one at SECU.
fleecing the fed is an unfair judgment and total distortion of the truth. fed comes out with a program to provide stability and liquidity to financial markets, to prevent FI's from having to do what SVB did - sell investments at a loss to cover deposits. SECU had $1.2 billion in unrealized losses as a direct hit to capital, and had trading losses in 2023. The program was used exactly as designed. Fed wanted to bolster balance sheet and earnings of FI's. really easy to critcize it in hindsight, but the system was one or two failures away from a full blown crisis. Nothing wrong with using this program at all, legally, ethically, or otherwise. you can talk about the taxpayers paying for it, which they did, but taxpayers subsidize the whole not-for-profit CU model. you can't rationally have it both ways. the loan was prudent move to guard against the risk of taking the 1.2 billion as realized losses. would that have been good for us?
Delete6:33pm Criticism wasn't in "arrears"... check the blog! Stench was unseemly from day one...just profiteering!
DeleteFed created a program to help financial institutions which were in trouble - SECU wasn't! Kinda like driving from Raleigh to Western N.C. after the hurricane so you can get some free food.
Purpose and principle do matter to most folks... others not so much... anything goes for some. Touche!
@6:54.. you're right. you were critical from the start, but your criticism didn't start until well after it happened, so by definition - hindsight. A better way to phrase it would have been - its easy to criticize with your view from the cheap seats with no accountability or skin in the game. Then, you are simply wrong that the program was meant for FI's in trouble. If that were the case, FI's would have had to demonstrate need for it through liquidity ratios or the like. and.. some might say have a 1.2 billion impairment to capital - almost 4 years worth of net income on current run rates, is a consequential enough of a risk to protect against it.
Delete7:17pm a bit circular in reasoning... "you're right", but, but, but...
DeleteAs one of the 2.8 million member-owners of SECU, don't think I occupy a "cheap seat"... except in the persistent attitude which seems to have gained favor at the SECU senior level... that SECU member-owners are bothersome, annoying even... as an equal member-owner of SECU don't I have "skin in the game"?
If the Fed program was designed as a giveaway for "everybody", why didn't everybody actively fleece the Fed like SECU? Most didn't... our credit union "maximized profits" in the program against the Fed... most institutions would never show such brazen disregard.
The fleecing didn't fix your "capital impairment" did it? We members in "the cheap seats" are paying for "your impairment" through continuing low savings rates.
That fleecing the Fed somehow "protected your risk" is a bad joke... complete BS!
Suck it up, just accept accountability.. won't hurt you to admit what we all can see.
The only need to cover deposits stems from the below market rates that members were being fleeced out of, so they took their money elsewhere.
DeleteEven if 633s narrative were true, lets not forget that someone bragged at the now deleted 2023 annual meeting about half a billion in profit. That's a little under half the 1.2 billion you claim was needed to keep secu from going under. if we didn't need 1.2, we certainly didn't need 5. As Mr B pointed out, no other large credit union did what this board did. Guess by that standard, we are a unicorn.
Its comical that someone tried to justify this horrible decision by pointing out this wasn't the first time secu had borrowed money. Know you might not recall exact details, but could you explain why we borrowed money during 2008-2012 Mr B?
9:38 pm Sorry don't remember the specifics about SECU borrowing over the years, but...
DeleteFirst, SECU has borrowed periodically over the years, generally to fund some short term need. I looked at the NCUA data from 2008/2011 and didn't find any outstanding borrowings at the end of any quarter on the balance sheet.
Second, while periodic borrowing does occur it is almost without exception from the Federal Home Loan Bank (believe the line of credit with them was @ $15 billion). Most institutions avoided like the plague borrowing from the Fed. The Fed is recognized as "the lender of last resort", which meant if you borrowed from them it was like waving a red flag that "there were issues" - you never wanted to raise that flag!
Lastly, 2008/2010 was a period of severe global financial difficulty - really, really bad stuff. At that time SECU was a huge supporter of the Corporate Credit union system (corporate CUs managed and loaned funds only for other credit unions), which collapsed as a result of the financial turmoil. SECU spent a lot of effort during this time moving funds out of the Corporate CU system to avoid losses. So some of any borrowings at that time were probably related to that fiasco.The largest collapse was caused by mismanagement at the corporate Wescorp which cost all credit unions collectively billions of dollars in actual losses - including SECU.
Don't forget that the SECU Board hired as our CEO in 2021 a Senior exec from Wescorp who not only served as a Wescorp SVP, but also as the lead NCUA examiner for over a decade prior to the collapse.
Can't make this stuff up... truly bizarre!
@9:38.. No one said the loan was needed to keep us from going under. Mr. Blaine made the dramatic statement about "not being in danger of collapse" now that we paid it off. The program was about PREVENTING CU's from trouble and having to book big losses and wipe out big chunks of capital. I didn't read where Mr. Blaine said no other large CU's did this. Navy Fed and BECU did, just for starters.
DeleteTruly bizarre hire of an incompetent administrator and has had SECU in a tailspin ever since. The Board's goal with that hire was to change the "culture" at SECU from member first to profit first,(although at least not openly talking it at 24 meeting) which it appears is still the main goal. It would be so helpful if the board would do more answering questions. IF membership is "allowed" to submit ONE question this year at annual meeting signup, perhaps members should submit the question they asked to this website or if facebook site opens up there, so that the same question is not asked over and over giving the board an easy out. Last year no member knew what had been asked, only ONE question was allowed, no list of questions asked was ever given. Could have been printed out ahead of time or posted on website. No need to listen to Brady reading off the questions they wanted to answer and the prepared ahead of time answers. Huge waste of everyones time. Just post them up ahead of time. Nothing spontaneous about it anyway.....
Delete9:06 am Again circular reasoning it seems. The criticism of "The Fed Fleece" has always been - from day one - that SECU was never in danger and didn't need the $5 billion loan... it simply took advantage of the Fed and the program to gouge a little extra profit. Same thought process as selling ice for $10 bucks a bag after a hurricane.
DeleteThe loan at SECU didn't "PREVENT" anything ... pure fiction. SECU foisted the burden of trying to recoup those "unrealized losses" onto the members through low savings rates. Both the Fed and the members were disadvantaged ...
Yes a few other CUs borrowed from the Fed, but have yet to find one which "maxed out" against the Fed simply for the purpose of profit.
9:06 am Must be a full moon! This commenter launched a lengthy incoherent rant...
DeleteSome excerpts: "Since the end of 3Q 23, there has been $948 million in dividend expense, and 183 million in net income. a $354 net profit give back from the record profit number people dwell on,"... to me this says it all about the current "members are such a bother" attitude which seems to lurk at SECU... paying members a 2% mediocre rate on MMSA and less on shares is "a $354 million net profit giveback"? A NET PROFIT GIVEBACK to member-owners?!!?
And... "This [the "net profit giveback"] was funded in part by the spread of the Fed loan. Members got higher rates because of the loan." In other words SECU screwed the Fed on behalf of the member-owners... [guess that means its our fault!]
Again, can't make this stuff up... but guess this is how "we" think now?!!?
the members fault? what a ridiculous comment. That's your issue, you think there is blame to assign for the loan, but there is none. ALM a complex topic and you're demonstrating you are in over your head. ALM First thought so too. Tough to have meaningful dialogue with someone who is on the outside looking in and understands little about leading a modern day FI.
DeleteThe attempt to Justify this unnecessary, poor decision, if we didn't borrow 5 Billion, our profit would have been 17 million less. For a prepared answer...smh
DeleteIf borrowing money to invest is a wise decision, why don't other financial institutions do it?
633, if its such a great thing, did you refinance your mortgage and take the equity out in cash to invest?
10:41am Guess "someone" has to accept accountability since you're unavailable. So, please refund my portion of the "net profit giveback" gain to the Fed with my apologies.
DeleteGood Gracious!! Asset Liability Management ALM. 1041 implies that Jim Blaine ran SECU for over 40 years with no understanding about what he was doing--the excellent returns to members, low loan rates, conservative investment policies happy employees(for the most part) just to name a few--Was that all an accident? Anyone could have done that?! If it's all so easy, why isn't it happening now?
DeleteThe minute banks customers are restricted to shareholders, and shareholders are limited to one vote is the minute credit unions should worry. Not until that time. That is the only significant difference in models.
ReplyDelete1:59 pm This one doesn't hold much water. Open membership at SECU (aka "anyone can join") would certainly defeat this argument; and, becoming a shareholder only requires a fully insured, readily withdrawable deposit.
DeleteBanks don't want to become credit unions, the problem is arising from the "wannabe bank" CUs.
No bank will ever want to force all customers to purchase a share in the company, restrict all voting rights to one vote per customer, and require all profits to be provided back to the customers. That is the only difference between credit unions and banks.
Delete5:15 pm Beg to disagree... for starters: banks operate for profit, credit unions don't. Most folks understand that fundamental difference... some CU folks no longer follow that principle.
DeleteProducts offer d by credit unions and banks are identical. Arguments to the contrary are clearly inaccurate. Credit unions offer personal loans. Banks offer personal loans. Credit unions offer mortgages. Banks offer mortgages. Credit unions offer credit cards. Banks offer credit cards. Those are products that credit unions provide that are identical to their banking counterparts. Field of membership and ownership structure are the differentiators. Interest rates set for each individual account vary within credit unions and banks, and are not what set credit unions apart. Though, based on tax savings, in theory credit unions should be able to offer lower interest rates on loans and higher deposit rates. Field of membership is by far the largest threat to credit unions.
ReplyDeleteProducts and services are not identical, far too simplistic a comparison. Kinda like comparing hometown high scholl football to the NFL... yes there are some similarities, but ... "identical"? A bit of a reach, don't you think?
DeleteCredit unions were created to give working men and women access to consumer credit at a time when most consumers could not borrower from banks - just wasn't done at the time. Once banks recognized how "profitable" consumer lendind was, they jumped in with both feet!
2:00 pm commenter is exactly right. banks and CU products are basically commodity products and they offer ubiquitous services, with only small variations on the theme around product features, fees, pricing, etc. Financial services, unlike consumer products like apple, sell commodity products and depend on scale, efficiency and execution - not the next iteration of an iphone. that's the point.
Delete6:38 Lack of imagination shines through! You're only a commodity if you think you are!
DeleteUnicorns are different...
If the nonprofit status gives credit unions such a competitive advantage, then why aren’t banks lining up to convert to credit union charters?
ReplyDeleteSame reason a Presbyterian doesn't want to become a Methodist... different beliefs, different creed, different view of the world.
DeleteThis is why their argument doesn’t and can’t hold up. There is no competitive advantage solely because of the tax break.
Delete5:19 pm You're saying there is no advantage in being tax exempt for SECU? That would qualify for la-la land thinking I suspect.
DeleteWhat’s the difference in being exempt from paying federal income tax and not owing any federal income tax on income?
DeleteTax emption really makes no difference. Either members get higher deposit rates and lower mortgage rates, resulting in higher personal income taxes, or the financial institution pays income tax, resulting in lower deposit rates and higher mortgage rates and lower personal income taxes. Either way the consumer is paying the tax. If the corporate rate is lower in aggregate, then it could be more beneficial for the consumer to have the financial institution take the tax hit.
Delete6:59pm Every tax paying citizen and corporation in the U.S. of A. is laughing at the thought that "Tax exemption really makes no difference"..... somebody's eating mushrooms!
DeleteNo mushrooms. I just don’t live in your imaginary world where the consumer isn’t the one who always ends up paying the tax.
DeleteAll a nonprofit tag does is restrict how a business can choose to operate. There is nothing preventing a for profit business to give back all profits to its owners every fiscal year. However they have the choice not to give all profits back to the owners if it does not make strategic sense to. A nonprofit is forced to give up the flexibility in deciding how to use profits.
DeleteOnly reason I would want a company I own to be a nonprofit is that it makes so much money that I would pay a higher effective tax rate at the corporate level than I would at the personal tax level.
Delete7:49pm ?...?...?
DeleteHow do profitable corporations get away with paying no U.S. income tax? Their most lucrative (and perfectly legal) tax avoidance strategies include accelerated depreciation, the offshoring of profits, generous deductions for appreciated employee stock options, and tax credits.
DeleteI'll have what he's having bartender ...
Deletehttps://www.nafcu.org/system/files/files/NAFCU%202021%20CU%20Tax%20Study-FULL-Web.pdf
Delete7:49, corporations are taxed at the corporate level and when profits are passed to shareholders, the shareholders are taxed again. This is referred to as double taxation which is why banks are so against the credit union tax exemption.
DeleteS-corp?
DeleteI wish these folks defending banks would go work at a bank
Delete7:49pm what the hell did I just read?
Delete8:36pm Not so fast...its a little bit more complex than this simplicity... banks have always "cried wolf" about taxation and "un-level playing fields"... but the banks have created dozens of benefical tax loopholes over the years.
DeleteHere take a look: https://www.wipfli.com/insights/articles/fi-does-s-corporation-status-still-makes-sense-for-my-bank
Woohoo tax talk! Where the answer is always, it depends!
ReplyDeleteSECU is funneling lots of its "profit" into reserves. Why keep reserves at 10-11% when the law requires 7%? Isn't that keeping money from the members that those members could be spending in NC communities? Or from employees to fund better pay for the branch employees? Why on earth would SECU be managed with so much reserves? why not take a hit on that 1.2 in underwater investments and begin paying the members more for their savings? ( If SECU leadership thinks that telling members 2% is a terrrific rate, and that the members believe that lie, the board is clearly living in lala land!! How do they explain all the deposit losses from A+ folks that they supposedly want to keep so badly?)
ReplyDeleteTrust is a delicate thing. It takes time to earn but is easily lost... I probably won't live long enough to gain it back ... FWIW.
ReplyDelete