Before last Friday, credit unions had remained fairly immune to the fallout from the financial meltdown. But with the implosion of U.S. Central and WesCorp, credit unions are now knee deep in the economic crisis.

Welcome to hell.

Credit unions have some serious explaining to do. What happened? Who did what when? What’s the difference between a “corporate credit union” and a “natural person credit union?” And the million-dollar question:

“Are credit unions safe?”

There are some credit unions who got started with the damage control over the weekend by posting updates about the situation on their websites. That’s a good start, but it’s only the beginning.

Here are some of the things credit unions — all of them — need to get started on immediately. Today. Now.

• Staff – They are going to be bombarded with questions all week. They are going to have to explain things in plain, simple English, which means they first must understand the situation themselves. And remember, every concerned member with a question gives you the opportunity to talk-up your strength and safety. Even if members don’t call specifically about the NCUA seizures, you should take the time to see what they’ve heard and offer reassurance.
• Website – Build a page dedicated to explaining what happened and what it means to members. Link to this page right off your homepage, preferably with a banner ad.
• Direct Mail – Craft a letter. Send it to all members. If you don’t have one in the mail by Tuesday afternoon, you’ve taken too long.
• Email – Send one in the next 24 hours.
• Public Relations – Don’t wait for the press to call you. Contact them right away. Don’t wait until Tuesday or Wednesday. Do it today. You may only have one chance to get the right story out. (Update: Here’s a good example.)

If you didn’t do business with either of the failed corporates, tell them. If you have a capital position worth bragging about, do it. You can’t overwhelm members with too much information in this situation. People are starved for information about the health and well-being of their financial institutions. Embrace this as a chance to fully explain your position.

When you’re done taking care of the most important communications priorities, you can circle back and take a look at all your other communications channels to see what else should be used to convey your message — statement stuffers, on-hold message recordings, newsletters, etc.

Bottom Line: Members are going to be scared as hell, so you need to do everything possible to reassure them. Fair or not, they are going to blame ANYTHING they perceive as negative — any change in rates, any change in fees, any change in their favorite teller’s attitude — on the implosion of the corporate credit union system.

Note: If credit unions go out of their way to reassure an anxious public now then find themselves taking TARP money sometime down the road, the industry will lose all credibility, all the good-will and all the consumer confidence that’s been built up over the last few months.

An AIG corporate security memo, leaked to Gawker, advises employees on how not to fall victim to the populist horde calling for their heads. Click to enlarge.

Here’s to hoping your financial institution never, ever has to issue a memo like this.

$500 billion FDIC bailout forebodes massive failures

Late last week, the U.S. Senate proposed to allow the FDIC to borrow as much as $500 billion from the Treasury Department. While the mainstream media obsesses over the seemingly never-ending stream of colossal bailouts pouring out of Washington, another — arguably more important angle — is going relatively unnoticed: Massive bank failures are on the way.

Bailout increases normal FDIC fund by 1000%

First, let’s put the dollar amount in perspective. Historically, the FDIC fund has maintained a reserve around one percent of all insured deposits. At the start of 2008, that was $52.4 billion. But one year and 25 bank failures later, the fund held $18.9 billion, down 64%. As of February this year, another 14 banks had failed, draining another $1.7 billion from the insurance fund. Three more banks have already failed in March, whose hits to the FDIC have not yet been calculated.

Currently, the FDIC’s deposit fund is at just 0.4% of banking industry assets. That’s barely a third of the 1.15% statutory minimum. So the FDIC desperately needs cash…and a lot more than the $15 billion in special assessments they just tagged on their insured institutions (for just this year alone).

How big is the problem?

It almost seems the FDIC’s insolvency is inevitable. At least that’s what the FDIC’s chief Sheila Bair is worried about.

Last month Bernanke sent a letter alerting Congress to the imminent dangers if the FDIC wasn’t given a “mechanism that would allow the FDIC to respond expeditiously to emergency situations that may involve substantial risk to the financial system.” In case you aren’t nuanced in the language of “Fed speak,” what Bernanke is saying is, “Look out. Something’s coming. Are you hearing me??? Are you listening? Something big is going to happen.”

At the current rate, the FDIC will seize over 100 banks by the end of the year. Some prominent research firms in the financial industry predict that the banking crisis will claim 1,500 banks before it’s all over. RBC Capital Markets recently upped their expectations for bank failures earlier this month, warning that they anticipate 1.000 institutions could fail over the next three to five years, up from their earlier forecast of only 300.

More than 1,900 financial institutions went under during 1987-1991, peaking with the failure of 534 banks in 1989.

Institutions on the FDIC’s  “problem list” grew to 252 lenders in the quarter ended December 31. Back in Summer 2008, there were only 90 so-called troubled banks. But nowhere on the list was IndyMac, Washington Mutual, nor Wachovia.

Reality Check: The FDIC doesn’t know which banks are going to fail this quarter or the next. All they know is that massive failures are on the way.

Some people speculate that either Citi or BofA are next. If either one failed, that would slam the fund for around $500 billion according to some estimates. When IndyMac failed, it cost the fund $9 billion and the bank had $31 billion in assets.

The five biggest U.S. bank holding companies — Bank of America, Citi, JPMorgan Chase, Wells Fargo and Wachovia (now owned by Wells) — had domestic deposits ranging between $271 billion and $701 billion at the end of the second quarter of 2008.

“It’s the biggest banks that need the bailout,” says Walker Todd, a former Fed official, lawyer and economic historian. “And those hold the vast majority of the estimated $4.54 trillion in FDIC insured deposits.”

Bottom Line: Whether it’s one big bank or hundreds of smaller ones, the shockwaves hammering the financial industry are far from over. By the end of the year, there will be far fewer bank brands covered by this publication. And it could be a long time — if ever — before we ever see the 8,000+ banks that the U.S. once had.

Key Questions: If the amount of insured accounts is fixed at $250,000, what will the affect be of making FDIC premiums permanently larger? What is the right amount for the FDIC to hold in reserve? Is it more than the historical 1%±?

[ratings]

“The public doesn’t understand how the system works, so we look for things we do understand, like banks not making loans and people spending money to redecorate their offices, or sponsor a ballpark, or buy a corporate jet, or pay out annual bonuses. These things are immaterial to the reality of the problems facing the banks, and no one is going to solve this crisis by cutting back on expenses, but this is where the focus is now.”
– Andy Bateman, CEO of Interbrand

“The super-boom got out of hand when new products became so complicated that authorities could no longer calculate the risks and started relying on the risk management methods of the banks themselves. Similarly, rating agencies relied on the information provided by the originators of synthetic products. It was a shocking abdication of responsibility. Everything that could go wrong did.”
– George Soros, writing in the Financial Times

“Like it or not, the company stands a better chance of repaying taxpayers with the Mets than without them.”
– Tom Van Riper, Forbes, defending the CitiField sponsorship

“The public mood has remained angry at banks, and banks seem to be realizing that the public and politicians are demanding more specific information.”
– Matthias Rieker, WSJ

“Compared with the trillion-dollar rescue packages under negotiation in Washington, the problems facing credit unions look like a rounding error.”
– Steven Syre, The Boston Globe

“I really believe in the credit union movement. Credit unions have some great advantages, they just haven’t seized the advantage.”
– Arkadi Kuhlman, CEO of ING

“I know some of you are sitting here and you might say, ‘How can you come to this room and talk about credit unions?’ The fact of the matter is, business as usual has to change.”
– State Sen. Malcolm Smith, recommending NY Bankers learn from credit unions

Right now, there is much debate about how much banking executives should or shouldn’t make. Is $1 million too much? Is $500,000 fair? What about bonuses? One of the big concerns is that Washington will end up structuring compensation packages at banks (along with shareholder dividends and interest rates). Socialized banking here we come?

But these are the wrong kinds of things to be worrying about. It’s not about the decay of capitalist principles. It’s not about banking execs living the high life.

It’s about who is getting the big bucks, not how much. It’s also about principles like merit and accountability. That’s why people are so huffy about big bank bonuses this year — because they are being paid to the same people who screwed the financial industry up in the first place.

Reality Check: If a bank gets TARP money, it is probably screwed up somehow. People who screw up, or people who run screwed-up banks, shouldn’t get bonuses.

Win = bonus. Fail = no bonus. Right? The American Way? Getting paid a salary is one thing, even a handsome one. But earning anything above and beyond should be based on merit.

Financial institutions complain about how the government’s restrictions on compensation will affect their ability to “attract and retain top talent.” Attracting top talent is certainly a major concern; the industry needs the brightest and most capable leaders to get through this. But retaining talent?? Most of America (e.g., bank shareholders) is haggling over how much bankers should/shouldn’t make when many bankers probably shouldn’t even have jobs at all.

Bottom Line: You can’t attract qualified executives when the compensation is capped at $500,000. No one will get the job done for that amount. Especially not the current guy.

Reality Check: Thinking the same people who got us into this mess can get us out is like thinking more debt will fix our credit crisis.

The U.S. is (1) giving away money it doesn’t have (2) to the same bankers who created the problem so (3) banks can lend it (4) to people who don’t qualify so they can, in turn, (5) buy crap they don’t need and can’t afford. And we expect a different result?

“Deposits are the lifeblood of banks.”
– Bob Chapman, President
Bank of the James

These days, you hear about a lot of financial institutions seeing huge increases in their deposits. Some financial institutions are seeing their deposits double over last year. Even JPMorgan Chase, an international megabank, was able to take in an extra $87 billion.

Reality Check: Now is not the time to pat yourself on the back. Everyone’s deposits are up (well, not everyone, but most). This is money just walking in the door.

A survey last fall by the ICBA showed that 70% of community banks were seeing deposits grow year-over-year. More than a quarter of the banks surveyed saw deposits grow by at least 11%. And a recent survey by CUNA found that one-fourth of credit unions were enjoying above-average growth.

One in five people said they were likely to move at least some of their funds to another institution soon. Nearly one in 10 were likely to move all their money.
– Nielsen survey

Key Fact: In a recent Nielsen survey of 3,000 consumers, one in five said they were likely to move at least some of their funds to another institution in the near future, with nearly one in 10 likely to move all their money.

Key Questions:

• What are you doing to keep your existing deposit base from defecting to other financial institutions?
• How much more could you be gaining if you had an aggressive deposit growth strategy?
• What are you doing to retain your newly-won deposits over the long term?

Both Mark Zandi, chief economist at Moody’s Economy.com, and Cam Fine, chief executive of the ICBA, both agree: The movement of money we’re experiencing in the financial industry is something we haven’t seen since the Great Depression.

From August to September last year, bank deposits rose by more than $158 billion, as investors yanked money out of stocks, bonds and failing financial institutions. $50 billion poured out of the stock market in the month of September alone. Where did people put it? In the relative safety and security of liquid deposits.

“People are panicked, and they want something as close to the mattress as they can find,” says Moody’s Zandi.

And that’s why many institutions are touting their financial strength.

“Banks’ emphasis on safety certainly scratches where it itches for consumers in this current environment,” says Greg McBride, a senior analyst at Bankrate.com.

McBride says deposits have always been a competitive business for financial institutions. But at a time when bank capital has been whittled away by loan losses, and banks are scrambling for low-cost funding, growing deposits has become more important.

That certainly helps explain why competition for deposit dollars has become as fierce as its ever been.

[Editor's Note: This is a guest article from William Quinn, an associate at Callahan & Associates.]

No matter how the financial rescue plan unfolds, the financial industry as a whole will not go back to the way it was. This challenging economic climate provides a historic opportunity for the credit union industry to step out from the shadow of banks and take a prominent place in Americans’ financial futures.

With this in mind, credit unions need to decide today where they want to be when it all shakes out. They must position themselves correctly to succeed. Let’s look at the three ways to reach your market:

1. Marketing to existing members
2. Marketing to potential members
3. Member-employee interaction

1. Marketing to Existing Members

There is opportunity in enhancing relationships with existing members, and current statistics certainly show room for much greater penetration:

Nielsen just released its ad spending data comparing the first three quarters of 2008 to 2007. In the financial industry, advertisers have already made significant cuts, with presumably more to come in 2009.

A sharp decrease in advertising spending by mortgage and loan sectors led a 10% slide in spending across the entire financial services industry so far this year. Mortgage and loan companies have spent 62% less — or $778 million –  on advertising during the first three quarters of 2008, compared with the same time period last year.

Overall, ad spending by financial services companies dropped from $5.9 billion in Q1-Q3 2007 to $5.3 billion through September of this year. (Note: Nielsen’s data excludes outdoor and B2B magazine ad spending.)

Traditional investment firms and mutual funds are increasing their budgets modestly — about 4-5%. Meanwhile, online investment firms are growing their budgets by almost 16% collectively, with some like E-Trade upping their budgets by 25%.

Lenders of all sorts — but especially mortgage companies — are slashing ad spending by nearly two-thirds.

Despite the struggling economy, some sectors of the financial services industry are boosting their ad budgets.

Source: The Nielsen Company

Here are recent stories of interest from around the web.
Click on the hotlinked headlines to read more.

Schiff predicts every aspect of today’s meltdown in 2006

Peter Schiff. If you didn’t know his name before now, you’ll remember it after watching this video. Among Schiff’s forecasts — made a year or two ago:

• By November 2008, we will know we’re in a deep, dark recession
• Subprime mortgages will collapse the housing market
• Houses will be on the market for 6 months or more
• Home equity will “come crashing back to earth”
• Consumer access to credit will evaporate — including auto loans and credit cards
• You should stay out of equities
• Financial stocks are “toxic”
• Bonds will be hit hard

Schiff nails it. Over and over. And the announcers on Fox Business and MSNBC actually laugh — in his face — over and over. Then the so-called “experts, including Ben Stein, make a number of dubious stock picks: Merrill Lynch, Goldman Sachs, Bear Stearns and WaMu.

Top 5 banks now control 39% of deposits

How some banks are battling the confidence crisis

PR departments at Bank of America and other survivors are working overtime to soothe nervous depositors-and explain higher rates and fees. BofA, for instance, is boosting efforts to ensure employees are up on current events and know what to say about them. They’ve added a “Media Buzz” section to their intranet, a collection of news stories customers may have read, as well as “Bank Watch,” which flashes news of key developments in the financial services industry accompanied by suggested talking points.

When PNC said it was buying National City, BofA sent around a script for employees to use with customers that might be affected: “Your deposits would be safe with PNC, but wouldn’t you prefer to move your money to BofA, a bank you are already familiar with?”

Local banks feel left out

The smaller regional and local players say the bailout just helps big banks. Credit unions and community banks are grumbling that the massive Wall Street bailout package will put them at a competitive disadvantage. Apparently, these seemingly begrudged financial institutions feel it is only fair for them to get a share of the taxpayers’ money, even if they don’t really need it.

AmEx switches to bank charter to get slice of TARP pie

AmEx, dreading it might fall behind its big bank brethren, decided to reclassify itself so it could hit the Treasury up for $2.5 billion. Neato. Maybe those credit unions that want bank bailout money so badly should consider a charter change? It’s been reported that Starbucks could be facing a bleak future from a failed economy. Could they next to run begging for a TARP handout? Don’t laugh. It could happen.

Crestmark says “We’ve got plenty of bread!”

The business bank sent this message out as an email and postcard in early October. The marketing pieces were created in response to the volume of phone calls the bank was getting as to whether Crestmark still had any money to lend.

Before September 2008, you would almost never see a story about credit unions anywhere in the news. For decades, the mainstream media essentially ignored this sleepy sector of the financial industry. But these days, the news media is pouring piles of positive press on credit unions at a dizzying pace. And from the looks of it, news outlets won’t stop singing the praises about credit unions anytime soon.

Reporters, eager to report on any ray of sunshine they can find in this dour economy, are frequently touting the safety, strength and stability of credit unions. There is a wide range of points these articles make, but the main themes include:

• Credit unions are not-for-profit and owned by members (no shareholders)
• Credit unions typically offer better rates and lower/fewer fees
• Credit unions have money to lend
• Credit unions are more willing to look at an individual’s credit situation when making loan decisions
• Credit unions have insulated themselves from the subprime mess
• Credit unions often service their own mortgage loans, requiring them to be more prudent in their lending practices
• Credit unions are local, and not run by Wall Street bankers
• Credit union deposits are insured through the NCUA up to $250,000
• Credit unions are well-capitalized compared to their bank peers

If you’re a credit union, these are the things you need to be telling your audience.

Here are some of the headlines and excerpts from mainstream news outlets… in just the last two weeks.

“Bad times for banks means boom times for credit unions.”

– Time Magazine

“With banks reeling, depositors turn to credit unions.”

– Triangle Business Journal

“Credit unions offer alternative to skittish banks.”

As the banking industry stumbles through the crisis that has gripped the financial world, consumers have a viable alternative to a traditional bank: a credit union.
– Chicago Tribune

“As economy swoons, more people are joining credit unions.”

With all of the troubles taking place in the financial industry these days, one sector that appears to have avoided the mess of subprime and other shaky loans is credit unions.
– Bellingham Herald

“The uncertainty surrounding banks is proving to be a blessing for credit unions in the state.”

– New Jersey Biz

“Banks’ losses prove to be credit unions’ gains.”

For the most part, area credit unions have sidestepped the worst of the financial upheavals that have taken down some of the largest banks.
– San Diego Business Journal

“As banks tighten credit, credit unions booming.”

The only trouble they have, they say, is getting the word out to more people that they are sitting on money and eager to loan it.
– Crain’s Detroit Business

“Credit unions a refuge in dodgy times.”

– News Wales

“Credit unions show stability in crisis.”

At a time when banks are staggering under losses from the subprime mortgage meltdown, most credit unions are dodging that bullet.
– Inland Valley Daily Bulletin

“In these rocky financial times, with banks going belly up, more people are turning to credit unions.”

– Fox Atlanta

“Credit unions increase in popularity.”

These days, a bank’s loss could be a credit union’s gain.
– Syracuse 10 News Now

“Credit unions are one division of the financial services industry insulated from recent chaos.”

– Seattle Post Intelligencer

“Credit unions a conservative alternative.”

– Maryland Gazette

October 2008 was one of the roughest ever for the financial industry. Now that October has passed (and thankfully so), let’s take a minute to look at some of the ads banks and credit unions ran as the global financial crisis developed.

US Bank – “Roots”

The headline on this full-page ad from US Bank is awkward. The periods in “U.S.” and the overuse of the word “bank” make the headline choppy. Simply using “Bank Solid” would have been enough. Readers understand the implicit call to action: “You should be banking at US Bank.” That’s why advertisers advertise.

The artwork is visually captivating and the metaphor is relevant, although there isn’t a strong connection between the ads’ components (headline, artwork and offer). It feels a little slapped-together, which it probably was. It’s not until you get to the first sentence of the body copy (people read ad copy?) that the “roots” connection is made. The copy also promises a “guaranteed rate of return” on CDs, something BofA has started emphasizing in its ads as well.

Including product offers in your “safe and sound” message is smart. It doesn’t seem practical to run a pure image ad right now — one whose purpose is to simply reassure customers. That kind of ad doesn’t really work to build the brand as much as it “stops the bleeding.”

KeyBank – “Proven Over Time”

Any bank could run this ad. All you have to do is change the year in the first sentence of the body copy and swap out logos.

Banks run ads like this all the time. Some banks even run this kind of ad one day, then fail the next. People read this kind of stuff and roll their eyes. Why not provide more proof for the otherwise unsubstantiated claims like “proven over time” and “well-capitalized?” If you’ve got a cap ratio worth bragging about, why not explain it to people? And don’t use the excuse, “They don’t care,” or, “They won’t get it.” The typical American consumer isn’t as dumb or disengaged as you think. She is your wife, or your dad.

Using Moody’s and S&P as “proof” of your safety and soundness won’t fly with those who have been paying attention to financial news lately. These ratings’ agencies are the same bozos who gave triple-A grades to all those toxic subprime mortgage-backed securities.

Sterling Savings – “Really Boring”

This ad is great. Sterling is mixing product offers with its “safe and sound” message. The irony is that the bank says it is boring and predictable without being boring or predictable. This ad shows how you can convey a “safe and sound” message without having to surrender any sense of personality your financial institution may have. Temporarily renaming products “The Really Boring [X]” is brilliant.

Power Financial – “No Bailout Needed”

This ad for Power Financial from the marketing folks at Shared Idiz shares a similar strategy with Sterling Savings. The ad introduces the “safe and sound” message in a way that connects with people on a visceral level; things like corporate jets really rub the average American consumer the wrong way.

Again, it’s smart to include product offers. This is one of the few ads out there promoting lending (home equity and auto) as part of the “safe and sound” strategy. As previously noted at The Financial Brand, saying you’ve got money to lend in the middle of a credit crisis is one of the most effective ways to differentiate your financial institution while suggesting you’re healthy and strong.

WaMu + Chase = “Peace of Mind”

The headline on this ad from WaMu raises one big, implicit question: Didn’t WaMu checking accounts come with peace of mind before the takeover? It’s the word “now” that triggers the scrutiny. You wouldn’t wonder what was previously wrong with WaMu if the headline simply read, “Free checking. With free peace of mind.”

The body copy in this ad is pretty good. Too bad no one reads ad copy anymore though. If you’re one of the few who does, click on the ad to enlarge it.

ING Direct – “Manifesto”

As usual, ING Direct is taking its own unique direction on the financial crisis. Recognizing the public’s shift from credit-based spending to thrift-based savings, ING Direct is seizing the opportunity to tell its brand story in one of the most unique ads ever to come from a financial institution.

Netbanker reports that over 5,300 people have gone online to “sign” this “manifesto” at a special wethesavers.com microsite from ING Direct.

Tip of the Hat: To my dad, for mailing all but one of these ads to me.

Everyone’s hearing about how “money is tight” and we’re in the middle of a severe credit crunch. So if you’ve got money to lend, tell the world. It’s a much more effective way to reassure people that you’re safe and sound than simply saying “we’re safe and sound.”

It doesn’t matter if you’ve tightened your lending requirements. So what if you require a minimum 700 credit score now? People will think“You’ve got money to lend, so you’re okay.”

“I actually had people stop me on the street and say, ‘Great ad!’”
– Kevin Jones, President/MidFlorida FCU

MidFlorida FCU bought a full-page ad saying it is still lending money, it is financially sound, and doesn’t need a bailout. They say they’ve gotten more reaction to the ad than any other they’ve ever ran.

You can get tons of good, free press by simply calling the local news media (newspapers, radio, TV stations) and letting them know you’ve got money to lend. They’re eager to run some good, reassuring news:

• Coast banks: ‘We are lending’
• Regional banks say they have money to loan
• Credit unions ready to lend as banks tighten credit
• Credit union says, “We’re still lending!”

This worked back in July (when The Financial Brand first reported about it), and it’s a strategy that’s still working today.

You don’t even have to run an ad. Community Financial Credit Union put the message on their phone system: “Welcome to Community Financial, where we have millions to lend.”

Here’s an example of how one credit union, Sharonview FCU, is utilizing all the good press credit unions have been getting lately.

They took snippets from articles shared here at The Financial Brand and created this simple – yet highly instructive – piece about the Five S story (safe, sound, secure, strong, stable) that credit unions have to tell.

Sharonview’s Business Development team has printed and PDF versions of the flyer.
The PDF is hyperlinked to the original stories.

Heck, why not email it to members too?

Sharonview also has a “safe and sound” PDF
linked off a banner ad on its homepage.

Here are recent stories of interest from around the web.
Click on the hotlinks to read the full story.

Size Matters: In banking, small is better now

Ad-vice: More thoughts on how to communicate the “safe & sound” message

B.S. Triggers: Comparing “safe & sound” ads to cigarette commercials

P2P or not to P2P? Prosper closes down while Loania starts up

Brand Design: Looking at bank logos and how they evolve

Love or Money? Gen-Y prefers cash, tyvm

Aussie Innovation: ANZ launches account aggregation service

Up and Down: CUNA says credit unions business is mixed

“UTFCU Rocks” Hey, the headline pretty much say it all

Here are recent stories of interest from around the web.
Click on the hotlinks to read the full story.

A Failure to Communicate: Survey says financial brands not saying enough

Ad Quandry: Financial firms not sure what to do, say in tough times

CU Later: Zopa kills U.S. P2P service involving 6 credit unions

1 in 3: That’s how many credit unions in California are losing money this year

Regional Banks: “We’ll take your deposits!”

Green$ense: Citizens Bank will pay you $120 for this green account

Ad Nauseam: Banks burned by their catchy slogans

Ad Slash: Deep cuts in financial firms’ ad spending

Canadian Confidence: Crash won’t crimp Canadian bank marketing

Quad Shot: 4 credit unions merging into 4th largest in Manitoba

How Much? Financial industry Web 2.0 research report for $12,000

Money Monet: Missouri bank opens “art gallery” branch

Tightwad: Could this be the best named bank under the circumstance?