Monday, January 27, 2025

SECU: The High Risks Of Entering A Business You Don't Understand...

 ðŸ˜Ž If you're not familiar with Goldman Sachs, it is the seventh largest bank in the United States. Assets $550 billion+. In terms of SECU, @ 10 X in size and @ 1,000 X the level of complexity and sophistication. Goldman Sachs means business.

Among bankers, Goldman Sachs is generally acknowledged to be "the smartest kid on the block". 

Earlier in the month [1/14/2025 post], we took a look at Chick-fil-A and why it doesn't sell hamburgers. Why? Because CFA is the #1 fast food franchise in the U.S. in terms of both service quality and profitability. What would they gain by adding hamburgers? What would they stand to lose? Don't think they haven't thoroughly analyzed those questions; don't think they are unaware that their customers like hamburgers. Chick-fil-A made a well-considered choice to be the chicken sandwich unicorn!

Let's switch gears a little and take a look at a bank which decided it wanted to sell hamburgers, lost it's shirt financially, and had to stand down. That hamburger bank is Goldman Sachs - surprised?!

✅ Goldman is backing away from its consumer lending arm after suffering billions in losses. [Motley Fool]

"Goldman has tried to cultivate its own consumer banking division under its Marcus brand. Begun six years ago, Marcus offers high-yield deposit accounts, credit cards, and personal loans. But the consumer banking division hasn't been successful, having lost more than $3 billion since December 2020.  For all of 2022, the red ink totaled nearly $2 billion."

"It’s the end of an era. Marcus, an online consumer lending venture by Goldman Sachs, is winding down its lending business.  Goldman CEO David Solomon said,“…we tried to do too much too quickly. Solomon added that in trying to do too much, it was affecting their execution and he conceded that they didn’t have “all the talent we had needed to execute the way we wanted.”[debanked.com]

😎 Goldman Sachs thought it could master consumer personal lending, but failed - despite almost unlimited talent and resources. The "New/New" at SECU believe they can master business/commercial lending. The "New/New" without any convincing experience, talent, nor impartial, professional analyses seem to believe they can "outbank" Goldman and other experienced banks.

😎 Wanna bet? 

The membership at the 2022 Annual meeting approved a resolution asking the SECU Board to clarify and explain its intentions to enter the business/commercial banking market. The SECU Board accepted the resolution and promised to respond. To date - 2+ years later - the SECU Board has failed to respond as promised. 

😎 All we want to know is what kinda hamburger the SECU Board is cookin' up... and at what cost to the membership?

If the members somehow missed the Board response, just republish it on the SECU website.

 Thank you, hope it won't take another two years...

 


 

 

 


 

25 comments:

  1. Offering basic business accounts and basic lending, such as a business credit card, is not exactly competing with Goldman. In fact, hundreds of credit unions and banks do it already, with success

    ReplyDelete
    Replies
    1. 8:19pm Sounds simple.

      Since you brought it up, will you define what "basic" business accounts and "basic" business lending means? Would be very helpful to the discussion.

      To be complete would assume you will define what "non-basic" business accounts and loans are?

      Assume you're suggesting that "basic" is simple and has limits... what limits would you suggest?

      Delete
    2. Good questions. Helpful for you and others that have no experience in the space to become educated. Basic business lending means business credit cards, lines of credit, business auto loans, SBA loans, and equipment loans. There are regs that limit the amount of an unsecured MBL loan. You should check it out to get your answer. Accounts are analyzed checking, CD's, sweeps and basic treasury management like ACH, wire, positive pay, etc. All pretty basic stuff, most of it underwritten, funded and serviced like consumer accounts.

      Delete
    3. 10:07pm Thanks! You weren't too specific in a couple of areas. Could you help some more?

      1) Any limits on dollar amount?

      2) Commercial loans In North Carolina only or anywhere in US?

      3) Any and all businesses - doctor, lawyer, merchant, chief... mom and pop, Redhat?

      4) Real estate development, car dealer floor-planning, business inventory financing, restaurant equipment, hotels, vaping stores, shopping centers, massage parlors?

      5) For-profit and non-profit?

      6) Publicly traded companies and privately held?

      7) Governmental finance -state, county, municipal?

      8) Will loan rates be higher or lower than member consumer rates?

      9) Will this be risk-based lending with tiers also?

      These additional answers would be very helpful.

      Certain the ELT has presented these type questions for consideration to the Board already, haven't they?

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    4. your answers

      1) we get to go to 12.25% of assets, so around a 7 billion portfolio. we will need to limit the max to one borrower of $500 million.
      2) All over US. We'll sign up members through the AAA. Nationwide will let us get to $7 billion sooner.
      3) All businesses.
      4) high risk start-ups, used car dealer flooring, and big office buildings in charlotte and manhattan.
      5) both
      6) both, but prefer large public corporate banking clients. We can outbank B of A.
      7) all of them
      8) depends on the product
      9) of course. this is how we pay for it and maintain good credit quality. 5 tiers, though.

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    5. I don’t think anyone at SECU has planned any of this out yet because it’s not a priority. I’m not sure business lending, beyond what SECU currently does in the space, would most likely require different systems in place. Believe SECU’s systems are built for consumer lending, not business lending. Kind of difficult to even offer basic checking and savings when the systems that house that data are only built for consumer information, not business information.

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    6. 1) of course there would be limits on loan amounts. Since SECU hasn’t added this as a priority or on the strategic plan, don’t think those have been finalized or presented to the Board. Would think they would be fairly low to limit risk.

      2) who knows.

      3) the size of the loan limit and types of loans offered would limit the types of business interested.

      4)see 3

      5) does it matter?

      6) see 3

      7) see 3

      8) who knows, but depending on product it could be either.

      9) who knows, but there are business credit reports and scores so sure.

      Delete
    7. 6:51am Think the following summary of your in depth response is correct: "Who knows"?

      "Does it matter"? That SECU hasn't thought that far ahead may indeed matter... did you read the post?

      Just "winging it" is not a strategic plan. Agree?

      Delete
  2. did look it up and there no "basic business" . what are you talking about? Small Business? up to 500 employees. That is a pretty substantial and complicated business. Or is there a special secret SECU definition for "basic"business. less than 100 employees? 200? 300? Enlighten all us inthe dark ignorant members on what the board and CEO intend by "basic business lending".

    ReplyDelete
    Replies
    1. not at all a complicated business. 500 million credit unions can figure it out. so can we.

      Delete
    2. Basic services, not basic businesses.

      Delete
    3. 11:59pm "Professionals make it look easy, amateurs think it is."

      Realize it's probably just an estimate, but believe there are in total less than 5,000 credit unions, not 500 million.

      Typo, rounding error, just made it up?

      Delete
    4. 5:33pm Okay! Then how about defining what a "basic business" is for us. Never seen a list...

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    5. A big problem with only serving "basic" business is that goal of most all of them is growth and success. When they grow big enough or get too complicated, then they are pushed out into the market into the commercial banking realm with no relationship built. That relationship is essential in getting things done when you need them. You're almost doing them a disservice by enticing them to take their baby steps with SECU and then throwing them in the deep end of an ocean when they need something too big.

      Delete
  3. probably should get that core system built/bought first before start adding more complicated hooks , if you can even get that done ...

    ReplyDelete
  4. Who bails out the failures of these business'?
    Let me guess your member/owners?
    Did you ever ask them if they are all in on this?
    You know this isn't just your credit union or are you planning a takeover ... like for real? $200 a vote maybe?

    ReplyDelete
    Replies
    1. @9:26.. the members don't need to be "all in" on this. the members elected people to make those decisions for them. The members aren't all in on RBL, either, are they?

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    2. they are only interested in serving the Elite's interests ... while using our money as the safety net for their failures ...

      Delete
  5. Why would any employee post on here an idea or an item that has been discussed but not yet finalized with the board?

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  6. You haven't yet addressed the point of many commenters. If this is done commonly and done well by hundreds of credit unions, all smaller, most less sophisticated, why is it such a big risk for SECU?

    ReplyDelete
  7. 12:57pm Because what you say doesn't appear to be true.

    Your former Chair Bob Brinson, when publicly announcing the advent of business services clearly stated that 2/3rds of CUs don't offer business/commercial services. I believed him, you don't?

    As to "done well" by hundreds, the next post is for you! How would you have SECU members measure success?

    Our operating costs are already up dramatically... just pile it on?

    ReplyDelete
    Replies
    1. Actually about 4,500 CU's at year-end. Yes, believed Brinson. Don't understand your point. If only 1/3 offer it, that's 1,500 credit unions that do. Not suggesting 100% of them do it well, but does that not support the contention that hundreds do it well?

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    2. Yada, yada...3,000 / two thirds don't. Wonder why they don't if it is "basic", simple, any fool can do it?

      Surely, most credit unions' members like hamburgers!

      What does Chick Fil-A, Goldman Sachs and 3000 out of 4,500 credit unions know that ewe don't?

      Raise your hand if you haven't done your homework...

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    3. 6:10pm the 3,000 know they don't have the capability and systems for it.

      Delete
    4. 7:26pm Thought there was nothing to it ? Just another credit card and checking account...which is it?

      Delete