Firefighters have voted to transfer their credit union’s depleted assets to a bigger Auckland institution, and the few other remaining small credit unions are under pressure to follow suit

John May has been a familiar face in firefighting even longer than the Firefighters Credit Union. When his term as a credit union trustee ends in September this year, he will have been 50 years fighting fires and more lately, helping others as a volunteer support officer in the Hutt Valley.

It was not long after May joined the fire brigade that the credit union was formed in 1976 at a meeting at the Central Fire Station on Oriental Parade, Wellington, with just a biscuit tin, a notepad and a pencil.

May is one of those who champions the credit union. “A few years ago I was made redundant from my main job, so I took on another career which was completely outside what I’d done before,” he recalls. “But I needed some finance for it, so I went to the credit union and approached them about giving me a loan to kick my little business off.”

By last year, the New Zealand Firefighters Credit Union had built to about 2000 members with some $15 million in total assets, the second largest affiliated industrial credit union in New Zealand. It has an office in Petone, at the bottom of the Hutt Valley, and boasted of providing savings and loans, internet and mobile banking, and “every service you could expect”.

That was until the credit union’s chair and board admitted last year that it was so under-capitalised that it was in breach of basic Reserve Bank regulatory requirements and on the verge of failure.

And so, on Friday afternoon, the members of the credit union, who are also its owners, met by Zoom at a special general meeting, for a last, critical vote. There was an old-school camaraderie. “How ya doin’, brother?” asked John Rowe, as members gradually trickled online.

The members – mostly men if this Zoom is any indication, wearing a fair few traditional fireman’s moustaches – display an obvious affection for their credit union. Industry credit unions may seem to some like historical relics, but they continue to sign up younger members.

Chris Middleton, 35, is another champion. By his own admission, he didn’t really have enough money when he bought himself a ute. But when the former Waikato rugby lock signed up as a fire recruit, he’d joined the Firefighters Credit Union.

Former Waikato lock Chris Middleton bought his Hilux with a loan from the Firefighters Credit Union.

So he borrowed money to buy his diesel Toyota Hilux 3.0, and it now carries the numberplate MIDDL5. “It’s pretty much like a firefighters’ bank,” he says in a promotional video. “It’s a massive circle of trust. It’s firefighters lending other firefighters money and paying each other back, in a simple way of putting it.”

On Friday, though, they begrudgingly voted to transfer their credit union’s engagements to the bigger, better-capitalised NZCU Auckland.

“A big thank you to our members who voted on the New Zealand Firefighters Credit Union’s future,” said chair Mark Virtue, an operational station officer based in Wellington.

The vote was 95.9 percent in favour of handing over to NZCU Auckland, he said – a big change from last year, when members spearheaded by the Professional Firefighters Union voted down another rescue package from the country’s biggest credit union, NZCU Baywide (now Unity Money).

It was a slap-back for the board and for Johnsonville-based Virtue, former owner and director of the defunct Modus Operandi Investments. And he acknowledged this weekend, in a note on the website, that the past months had been difficult.

“Your board is confident the New Zealand Firefighters Credit Union now has a bright future,” he wrote.

That may be varnishing reality somewhat; in truth, the credit union has no independent future. Instead it will be subsumed into NZCU Auckland, though the branding and some of the members’ offers will be retained for the time being.

The Reserve Bank has argued for consolidation of credit unions and building societies (known collectively as Cubs, or non-bank deposit takers), warning last week that their scale and profitability was significantly challenged. Last year Steelsands Credit Union took over NZCU Employees Credit Union. And now NZCU Auckland is taking over Firefighters.

“Cubs have social objectives as well as financial which the Government and regulators have acknowledged differentiates them from other sectors. If Cubs are not supported, who will look after the interests of the under-served?”
– Rob Collins, Cubs NZ

A transfer of engagements is a legal process where all assets, liabilities, and undertakings are transferred over. NZCU Auckland has assured members that they recognise and value the power of the Firefighters Credit Union brand. “Firefighters are in every community, and NZCU Auckland has a strong community focus. They are committed to keeping the brand at the front of their business as its strength.”

The Firefighters trading name and collateral will continue for now, and its Petone office will also continue to operate at least until the end of the current lease term, next year.

With the quality of reporting by the Firefighters Credit Union degrading markedly over the past year, there are few transparent statements of the credit union’s assets and capitalisation.

But Rudolf Laumatia, chief executive of NZCU Auckland, has told Newsroom that the south Auckland-based credit union has total assets of $15.3m (lower than the $21m pitched to Firefighters members before their vote). And it has a capital ratio of 15.1 percent.

Given the projected valuations for the merged credit union, that suggests that Firefighters was down to just $8m in capital, and its lower capital ratio will drag down that of the merged union.

On the eve of of the vote, Laumatia said the compliance costs on small financial institutions such as credit unions were unsustainable. Unless the Reserve Bank and other regulators changed their approach, “the future of non-bank deposit takers will be in doubt”.

There are now just seven remaining credit unions, down from 70 at the turn of this century, and it was only mergers and takeovers that allowed them the scale to survive. “Consolidation with other credit unions is a definite outcome should the regulatory controls continue to be a major factor,” Laumatia said.

Credit unions and building societies, as well as the well-capitalised Christian Savings, have together set up an industry association named Cubs NZ. They argue that the audit and compliance costs applied to banks are unaffordable and unnecessary for small member-owned financial institutions.

Virtue said those costs had made it difficult to compete for the Firefighters Credit Union, and its capitalisation had fallen below the 10 percent required by the Reserve Bank. The credit union’s audit fees, alone, increased by $156,000 in 2020, and 400 percent over the past three years.

Cubs NZ secretary Rob Collins said the Reserve Bank and Financial Markets Authority had assured Cubs they were committed to a proportionate approach to regulation rather than “one size fits all”, especially under the new Deposit Takers Act and Conduct of Financial Institutions licensing.

This was justified, he said, given the excellent record of the sector both from a conduct and prudential aspect. “With the sector’s small size and low market impact, we are not anticipating significant issues in compliance. Part of the reason for the establishment of Cubs NZ was to share some of the compliance burden, so we can work together to help each other comply.”

“The merger of Firefighters and Auckland will strengthen the prospects for members of both credit unions. Auckland has a strong capital adequacy and a good base.”

Collins, the former chief executive of NZCU Auckland, said the co-operative financial services sector was strong overall. “There is no doubt that compliance costs have been particularly hard on smaller entities but our discussions with the Reserve Bank Governor and his team gives us great heart for the future of all Cubs.

“It is recognised that we have both social and financial objectives and serve many who are shut out of traditional banking sources. The Reserve Bank’s own survey in the Future of Cash project identified that 6 percent of the population – 300,000 Kiwis – use cash solely because they do not trust banks or banks refuse to deal with them.”

Finance Minister Grant Robertson is soon to introduce a new Deposit Takers Bill, which in principle will put banks, credit unions, building societies and regulated finance companies on the same footing.

“However, to apply the same rules and regulations to all of them is impractical,” Collins said. “Issues around liquidity, capital ratios, conduct and such like should be different depending on size. There is also an implicit government guarantee that the banks are too big to be allowed to fail and this gives them a double protection.

“Cubs have social objectives as well as financial which the Government and regulators have acknowledged differentiates them from other sectors. If Cubs are not supported, who will look after the interests of the under-served?”

Collins said there could yet be more amalgamations within the sector, but that depended on the decisions of individual boards. The industrial credit unions had their own flavour and might not wish to merge with other credit union, he warned.

Newsroom Pro managing editor Jonathan Milne covers business, politics and the economy.

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