Tuesday, January 5, 2010

Commercial Lending Undid HeritageWest

More details are coming out about the failure of HeritageWest FCU in Utah.

Ronald L. Burniske, president and CEO of Virginia Beach-based Chartway FCU, which acquired HeritageWest FCU, told the Virginian-Pilot that HeritageWest's difficulties arose from a loss of focus on consumer lending and its move into lending to commercial builders.

In a separate interview with Credit Union Times, Burniske pointed out that "any number of CUs, unlike banking counterparts, lack internal expertise to handle large scale real estate or commercial development endeavors, factors that undid the $311 million HeritageWest FCU."


  1. Banks supposedly possess this "internal expertise," yet banks in Nevada are failing just like credit unions. So what's their excuse?

  2. Jeffry, I don't think you read Dr. Leggett's post carefully. It quotes Ron Berniske, Chartway FCU CEO, as having told Credit Union Times that "any number of CUs, unlike banking counterparts, (emphasis presumably added)...." and making the irrefutable point that these deficiencies don't exist in banks.

    What Leggett is telling us is don't take his word for it; a seasoned credit union executive has acknowledged this inadequacy in his own industry.

    It must be true or why would Burniske say it and Credit Union Times report it?

    This is a fine piece of digging by Leggett and the American Bankers Association and proof positive that credit unions don't belong in the business of commercial lending at all.

    Either that or you have to get 9,000 credit union CEOs to keep their traps shut even if they don't want to.

  3. Darren,

    Was the insinuation that I lack reading comprehension skills necessary? I very much get the gist of Dr. Leggett's post, and understand how vehemently the ABA opposes commercial lending by credit unions. I've followed this back-and-forth debate as a neutral outsider for nearly a decade, so I'm quite familiar with the issues and talking points.

    I'll rephrase my question: If a lack of commercial lending expertise brought down this one Nevada credit union, then what brought down banks like Great Basin, Community Bank of Nevada, Security Savings Bank, Washington Mutual Bank and First National Bank of Nevada (all in Nevada)? If it isn't in their lack of commercial lending expertise, then what expertise were they lacking? If one of those banks failed because of their commercial lending portfolio, the argument asserted herein (that all banks possess a commercial lending expertise that all credit unions lack) would be proven false.

    Note: There are fallacies of extrapolation in the reasoning used throughout this discussion. It is fallacious to distribute and amplify the comments or outcomes from any one person or event onto the broader constituency.

    At the most, this situation anecdotally supports the ABA's position, but the comments of one person about one event cannot be used as "proof positive" of anything. It is neither objective, scientific nor logical.

  4. As of 3Q09, net charge-off rate of business loans was 0.44% at credit unions, compared to 2.28% at banks (Source NCUA and FDIC respectively). Apparently, banks also should not be in the business of commercial lending. Now if I could just find some random banker to agree with me...

  5. Jeffrey, who ever said that the Leggett's posts have to be "objective, scientific, or logical." I'm sorry you didn't get the sarcasm I tried to express in my comment. Of course no reasonable person would accept this anecdote as proof of anything. But Leggett puts it out there like bait; and you bit for it.

    The back and forth between Leggett and credit union officials in this blog sounds an awful lot like "oh yeah? well your mother wears army boots." It's silly. There's no intelligent debate going on between the parties here, or in the general debates between the bankers, their association, and credit unions that have taken place for more than 100 years. I've been in the CU industry for more than 30 years and I urge you and other CU colleagues to ignore these ridiculous posts. They're not intended to educate or inform. They're intended to provoke a defensive reaction. Don't give him the satisfaction.

    I've said it before and I'll say it again. We don't answer to Leggett and the ABA for what we do or how we do it.

  6. Further, credit union business balances are up 11% over last year, while they are down 15% at FDIC-insured institutions.



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