Here’s what’s been making the news in the financial industry lately.
Click on the hotlinked summaries to read the full story.

No Ally: Bankers turn on one of their own

Jack Those Fees: With all those deposits, how else are you going to make money?

Take It Back: 31 banks have given back $70 billion in TARP funds

Viral Fail! Blog post about systemic nightmare at bank goes viral (read comments)

Web 2.0: 10 ways financial services can use social media

Photo Cops: Innocent picture of an open ATM lands man in jail

Remote Tellers: Souped-up ATMs come to Michigan

eMagazine: Green Banking

Bribes: one way to buy deposits

National Bank of Kansas City is offering a free $50 Lowe’s Gift Card for opening a personal checking account. TCF Bank just announced their $50 Free Cash Checking Campaign. Neighborhood Credit Union is offering a free $100 bonus. HomeStreet bank is offering up to $215 free. At least Key Bank is giving away something a little different: a free Garmin nüvi GPS for banking with Key.

Umpqua adds ‘green’ to its org chart

Umpqua Bank has created a new eco-banking division and given employee Dan Weldon the title of Eco-Banking Manager. As the bank’s new eco-chief, Weldon will lead the development, delivery and tracking of green programs, including the GreenStreet lending program which offers financing options designed to help small businesses. Weldon is a LEED Accredited Professional (which means he knows how to design green buildings), so he will oversee lending for Umpqua’s business customers seeking funds for green construction projects.

Take it back. No, you keep it.

Lately, banks have been lining up to give back TARP money. TCF Bank was one of the first, but the Treasury said no. TCF says it was asked to participate in TARP even though it didn’t need the money. TCF is understandably frustrated.

On the other hand, Shore Bank must be thrilled. The Treasury said yes to their request to return TARP money. Shore felt persecuted by Congress, and didn’t like the public perception that they needed a bailout.

Shore cut the Treasury a $25 million check the same day they were approved for repayment. Lucky for them. So far, they’re the only ones allowed to back the Treasury back.

Can you believe that banks have to ask to pay the Treasury back? What kind of lender doesn’t want his money back? Is there some sort of pre-payment penalty? (See also, Catch 22.)

Noteworthy articles and other items of interest

• Twitter Stats: Pew research shows who is, isn’t using Twitter
• Show Me You’re Nuts! Financial marketer dares credit unions to go crazy
• Green Sprout: Startup e3bank to specialize in green loans
• 6 Key Words for Banks: Stability, Customer, Savings, Value, Brand, Metrics
• Failure Friday: Three banks seized by FDIC on Friday May 1 (2009 total: 32)
• California Crush: CA credit unions threatened by collapse of corporates
• Doom or Gloom? Nobel Prize-winning economist: bank rescue doomed to fail
• Similar Name, Different Bank: One of two ‘Frontier’ banks in CO seized

The WaMu Story

A computer expert with no obvious connection to WaMu has created a website, wamustory.com, where he shares his complex views on the seizure of WaMu. It’s detailed, lengthy, and has an occasional hint of conspiracy.

Trouble for some, opportunity for others

Market Insights offers some thought-provoking advice about how financial institutions shouldn’t just hunker down, they should embrace the opportunity to:

• Reconnect with your customers.
• Deepen customer relationships.
• Reestablish your competitive position.
• Take advantage of customer churn.
• Expand your BRANCH NETWORK.

Read the whole article here at their blog.

Percentage of consumers who have heard something
from the financial industry but felt more negative.
– Edstrom Worldwide

Percentage of consumers who have heard something
from the financial industry but felt more positive.
– Edstrom Worldwide

Percentage of consumers who have received
no direct communications from anyone in the
financial industry about the financial crisis.
– Edstrom Worldwide

Percentage of those who feel fully confident in banks,
down from 31% who reported full confidence in 2006.
– Edstrom Worldwide

Percentage of people who are
less likely to trust their bank.
– Siegal+Gale

Percentage of those who think banks are using
TARP money to pay salaries and executive bonuses.
27% think the banks are just holding on to it.
– Edstrom Worldwide

4 in 10 Americans believe the current economic climate will force
them to retire up to 10 years later than originally expected…or not at all.
– ING Direct

The percentage of disposable income Americans socked away
in January, the highest personal savings rate in 14 years.
– Commerce Department

Percentage of Americans who expect to receive a federal
tax refund for 2008 but will be saving it, investing it
or using it to pay off debt instead of spending it.
– ING Direct

Percentage of those applying for mortgages
that were not rejected by any mortgage company.
– Greater Nashville Association of Realtors

You may have heard that the economy could start its recovery sometime this year. Or maybe you believe that the financial industry’s worst months were back in October and November last year. If so, you might be tempted to think that the pressure to communicate your financial institution’s strength, stability, soundness and security has subsided.

Think again.

Reality Check: The scars left by the financial meltdown will leave consumers wary of financial institutions for many months to come — maybe even years.

Conservative estimates place the number of banks that will fail this year at around 100. The Financial Brand’s forecast isn’t quite so optimistic. With three banks seized by the FDIC on Friday, the total is now 20 so far this year. That leaves at least another 80 to go. To put this in perspective, remember that there were only 24 failures in 2008, arguably the most dismal year for the financial industry since the Great Depression

Key Questions: What will consumers think about your financial institution each time they read the headlines about more failed banks? How are credit unions going to respond to the flood of bad press about the seizure of U.S. Central and WesCorp on Friday?

Reassuring people is going to take a lot more than simply uttering the words, “We are safe and sound.” Where’s the proof? How will your employees respond when consumers ask you, “But how do I knooooww you’re safe and sound?”

Reality Check: Not one financial institution in the country gets an ‘A’ grade from The Financial Brand when it comes to communicating their strength and safety. (Yes, that includes you, gentle reader.)

Below are 20 questions your entire staff had better have answers for if you’re going to be able to craft a credible “safe and sound” story. The answer to every one of these questions could help you and your staff assuage people’s fears. Think about each one from the consumer’s perspective.

If you’re ready to take your “safe and sound” strategy seriously, check out ICONiQ’s Economic Crisis Communications Checkup. It’s the most valuable $995 you’ll spend this year. (Note: These questions and the analysis of the answers only represent a small portion of the checkup. The project includes a thorough examination of all media, marketing and communications.)

Are you safe? Here’s 20 things your staff better know

1. How many assets do you have?
2. What is your capital ratio?
3. What is your financial institution’s position on TARP? Has it been made public?
4. How has your loan volume changed over the last 12 months?
5. What is your loan portfolio comprised of? What is your subprime past?
6. Do you service your own loans? Or do you sell them off?
7. What is your default rate?
8. What were your loan loss provisions for last year? This year?
9. What was your net income for the last 24 months?
10. Do you expect to show positive net income in any quarter in 2009?
11. How have your rates shifted in the last 6-12 months (loans or deposits)?
12. How have your fees changed in the last 6-12 months?
13. Have you had any turnover in the top positions (CEO, EVP, VPs)? How about your board of directors?
    
14. Have you recently merged or are you considering a merger? How about a name change?
15. Have you closed or are you closing any branches? Have you built or are you building any new branches?
16. In what ways do you support local communities, the arts or charitable/social organizations? What is the annual amount of these activities?
17. What sponsorships do you pay for? Little league teams? Stadium names? Concerts? What is the annual amount of such sponsorships?
18. What is your travel budget for executives, employees and board of directors? How much is spent on attending conferences and other events?
19. What kind of perks are made available to executives, employees and the board — anything, like things like cars and trips?
20. Have you been rated by any ratings agencies like S&P, Moody’s, Fitch, Bauer Financial or Bankrate.com?

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.

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

Show me those loan docs

Homeowners facing foreclosure have a new trick up their sleeves. They are asking financial institutions to show them proof that the bank owns the house. “Prove you own it. Prove I owe for it.” Stall tactics? Yes, but it works. Unbelievably in this digital day and age, some banks are struggling to produce any documentation. Some people have found banks give up the search along with their foreclosure efforts. You should probably send this to your loan department ASAP.

Is it fair to bash competitors for taking TARP money?

While the author of the article never really seems to take a firm position on the issue, it’s really the question that’s most interesting. There probably isn’t a right or wrong answer. It’s just a matter of your organization’s values and your comfort level with aggressive marketing. You may not find it savory nor a “good thing for the industry,” but it isn’t unethical. And given the public’s general mood, it might be one of the most effective strategies you can deploy right now.

96.52% of all credit unions are well capitalized

After months of arguing about whether or not credit unions should pursue TARP money, someone finnnnalllly crunched the number to help answer the question, “Do they NEED it?” (Thank you Christian Mullins.) Take a look and see what you think.

Banker gives $60 million of his OWN money to employees

After selling a majority stake in Miami-based City National Bancshares last November, Leonard Abess Jr. gave $60 million of the proceeds — out of his own pocket — and gave it back to his tellers, bookkeepers, clerks…everyone on the payroll. All 399 employees received bonuses, and he even tracked down 72 former employees so they could share in the windfall. The bonuses were based on years of service, so for longtime employees the bonus came to over $100,000.

Asked later what motivated him, Abess said he had long dreamed of a way to reward employees. He had been thinking of creating an employee stock option plan before he decided to sell the bank. Mr. Abess, you are a true role model for the future of our economy.

The SEC should adopt CIA methods

In order to ferret out financial fraud, a noted law professor thinks the Securities and Exchange Commission should learn the basics of espionage. He says the SEC could learn a lot from the Central Intelligence Agency’s methods of gathering information. He stopped short of suggesting that waterboarding, torture and rendition should be part of the SEC’s arsenal, although that might really please the angry mob in the next story…

Grab your torch and pitchfork!

Last week, at-risk homeowners stormed the mansions of mortgage CEOs. Don’t be terribly shocked when Wall Street bankers become the targets of increasingly violent protests. You may think the probability of public lynchings is extremely remote, but you have to admit: It is now a real possibility.

Why are credit union executives frolicking around an exotic Caribbean resort while thousands of miles away, their industry’s leadership cries to Congress about “hard times” and the need for a TARP bailout?

That question — fair or not — will apparently be the central theme of an ABC News investigative report expected to air sometime this week.

According to a document provided to The Financial Brand, the Florida Credit Union League (FCUL) says an ABC News news crew was sent to the tropical isle of St. Kitts to spy on the 200 or so credit unions executives that were attending a CUES conference there. (CUES, for those who don’t know, is the Credit Union Executive Society, a professional development organization.)

The reporter’s assignment, it seems, was to show that credit unions are wasteful, self-indulgent spenders, no different than their smarmy bank brethren. For several days, the ABC crew posed as ordinary vacationers, filming credit union CEOs as they relaxed poolside and played rounds of golf.

The Financial Brand has previously written about the perils of participating in TARP, as well as the specific risks credit unions face should their requests for bailout money be granted. But this type of investigative report takes the demonization of financial institutions to a new level.

Reality Check: Apparently, you don’t even need to accept TARP money to get blasted by the press. Simply asking for it is enough to paint a big red target on your forehead. If you work in the financial industry, the news media — and perhaps the general public — expects you to live like a frugal monk.

ABC News has apparently contacted CUNA, the credit union industry’s official trade organization, for an interview. According to the FCUL, CUNA declined to participate in what they characterize as “ambush journalism,” arguing that anything said on-camera would be edited and distorted to fit the report’s biased and negative storyline.

Presently, it’s not known when the ABC News report will air, although it will likely be part of a 20/20 episode. What is fairly certain, however, is that the show will portray credit unions in an extremely unflattering light.

In anticipation of the piece, the FCUL sent a memo to the CEOs, board members, managers and marketing departments working in Florida’s credit unions. Titled “ABC News Investigative Reporter/Producer Ambush Interview Talking Points,” the document suggests responses to the inevitable questions credit unions will face after the piece airs. Among the points (some of them disputable):

• Credit unions have received no TARP money, and we are not seeking a direct injection of TARP money
• The only TARP money credit unions are interested in is a “backup” to the self-funded NCUA deposit insurance system
• If it became necessary to tap the TARP funds — something credit unions believe is highly unlikely — credit unions would then pay the funds back over time
• Credit unions view TARP as simply backup assistance for a narrow segment of the credit union industry that has suffered collateral damage in today’s troubled economy
• Credit unions didn’t make the toxic mortgages and liar loans that are at the root of the economic crisis
• Many who attended the St. Kitts conference are board volunteers who used their own personal vacation time to attend

Good thing the talking points were sent out, because the credit union industry can’t seem to get its story straight when it comes to TARP money. In a Credit Union Times article about the ABC News story, CUES president Fred Johnson said, “We told them [ABC News]…that credit unions have not asked for TARP money and [that] they got their facts wrong.”

Mr. Johnson, it would appear, has his own facts wrong. The credit union industry has been asking for TARP money over and over and over, dating back to November 2008. NCUA, CUNA and NAFCU have repeatedly pled their case in front of the U.S. Treasury, Congressional representatives, FOX Business, CNBC and just about anyone who will lend them an ear.

If Mr. Johnson did indeed tell the ABC News crew that credit unions haven’t asked for TARP money (hopefully not on camera), brace yourselves for one of the most painful, embarrassing, squirm-in-your-seat exposés you’ve seen in quite some time.

Key Takeaway: It’s not just “employee recognition events” (aka “parties,” aka “junkets”) that will get a financial institution skewered in the news these days. Apparently, conferences of any sort are now taboo for anyone working at a financial institution.

Bottom Line: In this economic climate, financial institutions now have to look at every single penny they spend. If you don’t carefully scrutinize each individual expense from the public’s perspective, you better prepare yourself for a lynching by a pitchfork-wielding mob.

Note to Financial Conference Planners: Forget Vegas, New York City, San Francisco or anywhere that the sun shines. Start thinking about towns in states like Kansas and North Dakota. In fact, you might even be able to score a couple of points by booking your next event in Detroit. Bah, forget about it altogether. There’s no point. You can’t pick a destination that will immunize you from the press, and no one has the money to go to any events anymore anyway…

[UPDATE: Fred Johnson, president of CUES, responds to the situation and provides some clarification in an official statement.]

[ratings]

Recent stories from the press have been rash to criticize anything that might be construed as an extravagance on the part of financial institutions. Some banks are crying foul. BofA and Wells Fargo are two banks that have both publicly taken issue with the news media’s spin on certain marketing initiatives.

FOX Business anchor Greta Van Susteren was just one voice among the angry hordes taking BofA to task over its $10 million Superbowl party. The bank blasted back, saying that this kind of marketing generates revenue, and ultimately will help the bank pay the federal government back.

They defended the event, saying it directly generated 14,000 checking and credit card applications. “For every dollar we spend in these business relationships, we generate more than $10 in revenue for our shareholders,” a BofA spokesman said. Besides, BofA taxpayer money wasn’t used; the bank had made contractual commitments for the event prior to accepting bailout money.

Then there’s Wells Fargo’s party.

Wells Fargo announced last week that it would cancel a four-day employee recognition event in Las Vegas after the media labeled it “a pricey Las Vegas casino junket.” The bank was forced to deny allegations that the bank “used the government’s investment to pay for these events.”

The bank may have capitulated, but it isn’t laying down without a fight. On its new blog, Wells Fargo chastised the media’s coverage as “misleading.” The blog post also makes an admirable attempt to justify the importance of the bank’s recognition events.

Wells Fargo went one step further. They took out a defensive two-page ad in yesterday’s New York Times. In the ad, CEO John Stumph said, “The problem is many media stories on this subject have been deliberately misleading. These one-sided stories lead you to believe every employee recognition event is a junket, a boondoggle, a waste, or that it’s for highly-paid executives. Nonsense!”

Key Question: Why didn’t bank parties and other luxuries bother anyone during the boom times?

Bottom Line:

• The media doesn’t seem to care if there’s any direct correlation between bank expenses and TARP money — and the general public cares even less. They’re going on the attack if they spot any financial institution spending money in a way they deem reckless.
• Under TARP, the rules of the game can change — without notice. In fact, the government can change the name of the game if it chooses.

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

“The public mood has remained angry at banks, and banks seem to be realizing that the public and politicians demand more specific information.”
– CNN Money

Banks try projecting a proactive image

In an effort to stay out in front of customers regarding the economic crisis, financial institutions deploy new taglines, launch new websites, create TARP “fact sheets,” and send their CEOs out for public appearances. READ ARTICLE

Citi plagued by Mets and jets

It’s been a rough couple weeks for poor Citigroup’s beleaguered brand. The NY Post broke a crushing story about how the bank behemoth was about to take delivery of $50 million jet. Then it was time to dwell on Citi’s $400 million sponsorship of the Mets ballpark. Maybe Citi would have taken less flak if it had announced plans to lend its TARP money sooner.

While we’re on the subject of stadium sponsorships…

Here’s a very good article examining the pros and cons of stadium naming rights deals. “Naming a Stadium: Frivolous or Good Marketing?” takes a reasoned look at the advantages, opportunities and the case banks make in favor of these exotic sponsorships.

Six keys for banks in 2009

Stability, Customer, Savings, Value, Brand, Metrics. READ BLOG POST

The unfortunate, ultimate cost

The financial crisis is driving Americans to suicide. This is a lengthy and serious examination of the recent trend. READ ARTICLE

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?

At last count, 315 different financial institutions had received over $300 billion in TARP money. If you’re one of the thousands of other financial institutions that didn’t get a slice of bailout pie, you should be grateful.

Why? Because when you take money from taxpayers, you can expect a whole new level of scrutiny from the general public. Bailout banks may not be held accountable by the government, but nothing can stop the court of public opinion from rendering its opinions.

Take this example. After Webster Bank announced it was opening a new flagship branch, the Bristol Press ran a stern opinion piece questioning the why the bank received $400 million from the U.S. Treasury’s Capital Purchase Program. Why should the government be giving Webster money to build branches, the article asks, especially when the bank’s executives said they didn’t even need money for a bailout?

Reality Check: Banks getting bailout bucks better brace themselves. By not saying what they’re doing with their TARP injections, the public can only speculate… and people have wild imaginations. People will look at any expenditure — even new branches that could benefit them — as a waste of taxpayer money… their money.

And if one new branch is all it takes to get folks riled up, how do you think they’ll react when they hear that U.S. Bank, relatively healthy by today’s standards, just signed a sponsorship deal for the Minnesota Twins new ballpark? You can hear it now: “We gave them $6.6 billion dollars and they go sponsor a baseball team???” It doesn’t matter if this deal had been in the works for the last few years. People don’t care.

Bottom Line: TARP money is a no-win situation for financial institutions. Its net effect is to add a completely unmanageable PR nightmare on top of all their other woes. In 2009, a bailout bank won’t be able to spend a penny without someone chucking around accusations of waste, frivolity and lack of accountability.

UPDATE (This item came in just moments after this article was published): Someone studied the investor teleconferences of a couple dozen banks who got TARP injections. What are they doing with it? Most banks see the bailout program as a no-strings-attached windfall that could be used for anything they feel like, so they are using it for two things: (1) as insurance against a prolonged recession, and (2) mergers.

The financial industry has suffered the most severe blow to its image in generations. Everything from TARP bailouts to multi-billion dollar ponzi schemes has left consumers reeling from a loss of trust and confidence in banks.

That is why it’s unfortunate to see this AP article with this headline:

“Where’d the bailout money go? Shhhh, it’s a secret.
$350 billion later, banks won’t say how they’re spending it.”

The Associated Press contacted 21 banks that received at least $1 billion in government money and asked four questions:

1. How much has been spent?
2. What was it spent on?
3. How much is being held in savings?
4. What’s the plan for the rest?

As one BNET reporter put it, “Dude, where’s my money?”

None of the banks provided specific answers, and no bank provided even the most basic accounting for the federal money.

Instead, banks like JP Morgan expressly declined to discuss what they’ve done with their TARP money. The most they’d say is, “We’ve lent some of it. We’ve not lent some of it.”

That’s too bad. These banks missed a real opportunity to rebuild trust and confidence. It’s not that they are obligated to conduct dollar-in/dollar-out tracking of their capital — even taxpayer money, in this case. But if these banks want to help rebuild their image and that of their industry, next time they’ll think twice about being less secretive and more transparent in the future.

“If they’re not more forthcoming about how they’re spending this taxpayer-funded aid,” wrote the BNET reporter, “Banks are on the path to further losing their customers’ respect, regard — and business.”

“Credit unions have
joined the long line
of bailout recipients.”
– NPR’s Marketplace

For the past few months, the mainstream media had been heaping mounds and mounds of glowing press on credit unions. But last week, the TARP got thrown on credit unions and what happened? Poof! The good news is gone, and now articles with a much more somber, sober tone have taken their place (something The Financial Brand predicted would happen last month).

Take this example from Time magazine. There’s a stark contrast in these two Time articles, one from late October and the other from mid December. The first article is markedly upbeat, where a playful picture accompanies a glowing story about credit unions (click on the images to read the complete, original story):

Their latest article is much more dour:

NPR’s nightly business show Marketplace chimed in with a similar slant: “Credit unions have joined the long line of bailout recipients.”

What makes this particularly newsworthy is that the mainstream media basically never runs a story about credit unions — ever — much less outlets with the prestige of Time and NPR.

The details of the credit union TARP plan itself are actually quite clever and creative, if not a little complex. The way it works is that corporate credit unions get $41 billion. The corporates will lend this sum to their members, “natural person credit unions,” who will turnaround and deposit the borrowed money back with the corporates. It’s fancy accounting footwork that supposedly doesn’t cost taxpayers anything…that is, except for some confidence in the credit union system.

Reality Check: It doesn’t matter that corporate credit unions are the ones directly receiving TARP funds. The news media doesn’t care. The story is too complicated to explain. Paraphrasing, reporters will sum it up this way: “Credit unions are getting bailout money.”

The credit union TARP scheme is somehow supposed to generate interest-income along the way. The interest is to be matched by credit unions, who will use the money to lower mortgage payments for distressed members. This plan to recalculate mortgages raises some big questions:

• Who gets their mortgage reduced? How are they chosen?
• How do people qualify?
• How many people will this money really end up helping?

Key Fact: 36% of mortgages modified in Q1/08 had a 36% redefault rate after 3 months. 53% redefaulted after 6 months. [Source: CNBC]

If credit unions have indeed found a way to trickle TARP money down to regular folks in the form of mortgage reductions, then they will have figured out how to do something that banks, Hank and Bernanke couldn’t.

Just the same, that isn’t the side of the story that the news media is likely to report.

“We are pleased that we have been selected to participate in this voluntary program.”
– D. Michael Jones
President and CEO
Banner Corporation

Recently, Banner Bank in the Pacific Northwest got an infusion of capital through the Troubled Asset Relief Program (TARP). The U.S. Treasury bought $124 million of Banner’s stock through the government’s Capital Purchase Program.

“We are pleased that we have been selected to participate in this voluntary program,” said D. Michael Jones, President and CEO/Banner in a press release.

“The additional capital will enhance our capacity to support the communities we serve through expanded lending activities and economic development,” he continued. “This capital will also add flexibility in considering strategic opportunities that likely will be available to us as the financial services industry continues to consolidate.”

The preferred stock will pay a 5% dividend for the first five years, after which the rate will increase to 9%.

At the time of the deal, Banner was “well-capitalized” under regulatory guidelines. The TARP purchase lifts Banner’s Tier 1 Leverage Capital Ratio to approximately 11.25% (up from 8.86%), and its Total Risk Based Capital Ratio to approximately 13.90% (up from 11%).

Banner Bank has $4.7 billion in assets an operates two commercial banks in Washington, Oregon and Idaho.

Here’s how the bank spun the story in a recent ad. What do you think? More importantly, how do you think consumers will react?

This ad from Banner Bank ran in Kirkland Reporter, December 3, 2008.

Back in September, as the economy began disintegrating, an unusual trend began to emerge. The media — who had been ignoring credit unions for decades — all of a sudden started talking about these member-owned financial cooperatives that had managed to avoid the economic catastrophe. Hundreds of articles later, it doesn’t appear that the trend will stop anytime soon.

Reality Check: The biggest PR bonanza to hit credit unions — ever — will come to a screeching halt if they take TARP bailout money as part of a “rescue plan” to address “toxic assets.” Expect all the good news stories about how credit unions are “safe and sound” to evaporate. Poof! Gone.

This is Part IV of The Financial Brand’s on-going coverage of the media’s lovefest for credit unions. Here are the other installments in case you missed them: Part I, Part II. Part III includes a summary of the main themes the media has been hitting in their articles.

“Downturn sparks credit union rush.”

– BBC America

“Credit unions weather downturn.”

– San Luis Obispo Tribune

“Credit unions become new safe harbors.”

– Fort Worth Business Press

“If you think credit unions are single-location dinosaurs available just to employees of certain firms, it’s time to think again.”

– Yahoo! Finance

“As U.S. banks retreat, credit unions step up loans.”

– Reuters

“While banks struggle with risky investments, credit unions avoid the fray.”

– Business West

“A credit union can help you through these tough times.”

– Easier.com

“In today’s economic times, credit unions offer some better options.”

– Naperville Sun