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Bank Vs. Credit Union Realities

A Snarketing post by Ron Shevlin, Director of Research at Cornerstone Advisors

Last July, I published (Motley) Fools Shouldn’t Write About Big Data in which I took Motley Fool to task for publishing something that I concluded was “an embarrassment to high quality journalism” because of the article’s inconsistencies and unsupportable assertions.

As Britney Spears might say, “Oops they did it again.”

An article penned by a Motley Fool contributing writer titled Americans Keep Fleeing Banks, Flock to Credit Unions Instead contains the following:

“Given current public sentiment against the nation’s big financial institutions, it’s a sentiment a lot of Americans might be able to get behind. Not robbing banks, exactly, but taking their money out of them … and putting it in credit unions instead. Owned by their members (rather than by profit-hungry shareholders), credit unions have both an incentive to keep costs low and a complementary lack of incentive to raise costs high.”

After comparing bank and credit union fees and rates, the author concludes “None of this is good news for investors in banking stocks, granted.”

My take: Shoddy journalism at its worst.


Let’s start with the title of the article which asserts that Americans are “fleeing” banks.

According to SNL Financial (no, not Saturday Night Live), through the first half of 2012, just a handful of the 50 largest banks experienced a decline in deposits from their 2011 levels.

As a group, the top 50 grew deposits by 8.5%. According to creditunions.com, from October 2011 through September 2012, credit unions’ share balances increased 6.0%. Big banks like WF, JPMC, US Bank, and PNC each had deposit growth about double the credit union total.

Consumers are fleeing banks? I don’t think so.


Motley Fool dude also says that “owned by their members (rather than by profit-hungry shareholders), credit unions have both an incentive to keep costs low and a complementary lack of incentive to raise costs high.”

Wow. An entity that supports/advises investors insults them by calling them “profit-hungry shareholders.” As a “profit-hungry shareholder” myself — along with tens of millions of other 401(k) participants — I find this pretty insulting.

Who does the Motley Fool dude think credit union members are, anyway? They’re average Americans — a huge percentage of whom own stocks in companies and are, therefore, one and the same “profit-hungry shareholders” he derides.

More importantly, though, the statement implies that credit unions have an incentive to keep costs low — and that banks don’t. Nonsense. I guess Citi plans to eliminate 11k jobs because they just don’t want to manage that many people anymore. Cost-cutting is one of banks’ top priorities.

The last part of the MF statement — “complementary lack of incentive to raise costs high” — could have used a little editing. I think what it should have said was “complementary lack of incentive to raise fees high.”

But it’s still nonsense. Credit unions may be non-profit, but they’re also not-for-loss. There’s huge pressure on CUs to raise fees on checking. I’d be willing to bet that in a lot of cases, CU management actually wants to raise rates, but the board won’t let them.

In any case, the Motley Fool statement doesn’t hold water.


Lastly, Motley Fool dude concludes “none of this is good news for investors in banking stocks.”

Geez, what rock is this guy living under?

According to a TheStreet.com article:

“2012 was a remarkable year for bank stocks, with the KBW Bank Index returning 30%, after falling by 25% during 2011. After a bumpy right toward year-end as the fiscal cliff negotiations dragged on in Washington, bank stocks have been strong so far during 2013, as positive economic reports continue to roll in.”

The article quotes one investment analyst as saying “Modest revenue growth, continued efficiency improvements, and deployment of excess capital are creating core earnings growth.”

So, tell me again, Mr. Motley Fool dude, why is “none of this good news for investors in banking stocks”?


Bottom line: At a minimum, the Motley Fool article is just shoddy journalism, demonstrating little knowledge of the banking industry.

But I can’t help but believe that the author was just looking for ways to bash big banks — regardless of what the data says, or what the realities are.

I expect this amateurish, politically-tinged journalism from certain publications and media outlets (like MSNBC and HuffPo). But not from one like Motley Fool.

Ron ShevlinRon Shevlin is Director of Research at Cornerstone Advisors. Get a copy of his best-selling book, Smarter Bank: Why Money Management is More Important Than Money Movement. And don't forget to follow him on Twitter at @rshevlin.

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  1. Thanks for taking the time to research and present the facts here. (So many biased articles, so little time.) Your post should be required reading in journalism school.

  2. I’m with you Ron. MF Dude sounds like a leftover Occupy Wall Street groupy. More serious articles on this topic report bank customers’ dissatisfaction and their desire to change institutions, but also report that the hassle of moving direct deposits and electronic bill payments keep these dissatisfied customers from actually following thru. IMHO, the process won’t chnge dramatically until community banks and credit unions offer ways to ameliorate the pain of switching institutions. .

  3. I’m always hopeful that there is some truth when I read these headlines as I would love to feel optimisitic that we have a chance steal some of the market share from the large banks but alas, even in our small market, the large banks still have the vast amount of market share and continue to experience the highest growth. Thanks as always for a good post.

  4. The Motley Fool is hardly a news media site with paid professional journalists. It’s a website with free investing advice submitted from folks around the world (many of whom are total idiots). All this free investing advice comes from people with a heavy bias. The author of the post Ron ripped up is probably shorting bank stocks and wants others to short them too. These folks don’t care about facts and accuracy. They want to stir up popular support for their financial position, even if that means fabricating their story.

    Bottom Line: Take what you read at investing websites with a grain of salt. It’s hard to take anything from a site like the Motley Fool seriously when you can also find articles like “Gold Heading for $26,000 an Ounce” written by people who sell gold coins.

  5. I actually thought that unsubstantiated bank bashing was no longer a sanctioned sport. I guess I was wrong. I wrote about it in March and need to offer it up again . . . Bank of America Should Become a Credit Union.


  6. FB: The author’s bio on fool.com pretty much confirms that this is no professional journalist (http://www.fool.com/about/staff/richsmith/author.htm). Worse, it’s not clear that this person has any experience or expertise relative to the financial services industry.

    But I don’t care.

    If you’re a site like Motley Fool, and you publish crap like this, you don’t get to blame it on the amateur status of the writer. It’s a big reason why I’ve stopped reading the Forbes blog. Seems like any idiot can post something there. And it’s as if Forbes doesn’t get that its the FORBES brand that suffers.

  7. Jim: No doubt the pain of switching keeps some people from doing so. But the MF Dude ticked me off for two reasons: 1) Talking about something which he obviously knows little about (i.e, banking industry), and 2) Making a dumb comment about the trends being bad news for bank investors.

    Point #1 I can forgive and overlook. But point #2 is really bad, because providing investment advice/counsel/info is what Motley Fool is supposed to be all about, no? The fact that MF Dude clearly had no clue that bank stocks had an outstanding year — in the face of these supposed customer fleeing them — is inexcusable.

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