This interview is one of five interviews with former bankers who are now credit union executives that were published in the Voices of the Industry section in the 3Q07 issue of CUSP.
Kinecta FCU, headquartered in Manhattan Beach, Calif., is a $4.3 billion credit union serving 200,000 members through multiple SEGs. Until 2001, it was known as the credit union for Hughes Aircraft employees.
What was your banking career like and how did you come to make the switch to a credit union?
SL: I began in financial services in 1979 thinking it would be a way to work my way through college; I never thought I’d stay with it but found I enjoyed the service aspects and made it my career. I worked in various positions in financial institutions, mostly on the financial and operational and administrative areas, and became the CFO of several. From 1999 to 2004, I was the president and CEO of Hawthorne Savings, a $3 billion asset community bank in the Los Angeles area, but it was sold during the consolidation of the banking industry four years ago. After leaving Hawthorne I worked for a year as the chief administrative officer at Countrywide Bank, a subsidiary of the mortgage company.
Kinecta was looking for a CEO. They knew about me because Kinecta’s headquarters was a quarter of a mile from the Hawthorne Bank headquarters. Kinecta liked some of the things Hawthorne was doing when I was the CEO there, especially Hawthorne’s leadership role and work in the community. Kinecta is very community focused and so began to talk to me. I researched the position, liked what I saw and accepted their offer.
What did you know about credit unions at the time?
SL: I thought credit unions were more difficult to join than turned out to be the case. I did not really understand how the FOM structure worked, and I did not understand the different kinds of charters or their effect on credit union operations. And I did not completely understand the ownership structure. What I did know was that credit unions had a very good reputation for service and enjoyed strong loyalty from their members.
When you joined Kinecta, what did you see as the differences between it and the banks you had worked for previously?
SL: When I began in community banks in 1979, such banks really were founded and run with the idea of community. They might have been started by the local prominent businesspersons and there was a close tie to the people in the area. But these kinds of banks have largely been bought up. Hawthorne was a local bank, but it was also a $3 billion public corporation. About 40% of its investors were institutional shareholders. They were very focused on shareholder value and the bottom line. The challenge we faced was to balance the customers’ and shareholders’ interests because the two were not always aligned. So there was really a double focus; trying to improve service, but also increase the return to the shareholder.
The emphasis on the bottom line was something you felt every day. It suffused the institution. If you did not focus on it every day, when you got to the end of the quarter you’d have a lot to answer for. It was part of the daily culture.
The beautiful thing about switching to the credit union was that then there was only one focus. Here, actions taken for the benefit of the members/customers are also for the benefit of the members/owners because they are one in the same. This was really the big difference; the others were small in comparison.
What did you bring from your previous experience in the for-profit world to your new work in the credit union? Did it help you help the credit union?
SL: On the one hand, I think that my work in the finance area was helpful. It offers me insights into the financial impact of such various factors as decisions and strategies on an organization, for example.
On the other hand, I think it was merely the wide range of experiences I had in the for-profit sector that helped me in the credit union world. I worked in both large and small institutions and I could draw on these experiences for my work with Kinecta. For a time, I worked for Prudential Securities as a stockbroker. This helped me, for example, understand Kinecta’s broker/dealer offerings.
Critics say there is no real difference between banks and credit unions. How would you respond to them?
SL: In terms of products, I would say there really is very little difference. But in the credit union world we are able to go beyond product to develop both relationships and trust with the persons we serve. Members really do feel that credit unions are not there to make money off them but rather to help them and to serve as their advocates.
It’s really the delivery and focus that make us different. Here at Kinecta we conduct a lot of seminars in our SEGs, go in at lunchtime and offer help to members and non-members alike. These might be on financial literacy, identity theft, financial elder abuse, retirement and such. In fact, at some SEGs, the HR departments refer their people to us because we have more detailed answers about early retirement options than the HR people. So the employees understand that we are reaching out to them, willing to help them even before they are members, and are willing to serve them. Every interaction builds that level of trust. This is key for us, the measure of satisfaction our members feel from our services.
What can credit unions do to stay competitive with banks in the future?
SL: We need to be aware that the canvas of the financial services field is changing, and we need to change with it. For example, our net interest margins are shrinking. This is partly due to new entrants such as ING Direct and Countrywide. These competitors found niches and work very well there, growing very fast and efficiently, with very low expenses. Merrill Lynch has started a bank. Wal-Mart is beginning to get into the financial services market.
I think that rather than trying to slug it out with such large organizations we need to find our own niches where we can add value and make a difference and then really focus on these. Credit unions can do this because they have the trust of members. I also think it’s going to be important to develop the proper niches because small credit unions are going to find it increasingly difficult to compete. We as an industry have to figure out a way to help the smaller credit unions prosper in the marketplace of the future.
Five Thoughts from Former Banker Simone Lagomarisno
1. In the banking world, emphasis on the bottom line was something you felt every day.
2. In terms of products, there is very little difference between banks and credit unions.
3. A big difference between banks and credit unions is that credit unions can go beyond products to relationships and trust. Delivery and focus make us different.
4. We should avoid trying to slug it out with the for-profit giants and instead find niches where we can add value and make a difference, then really focus on these.
5. The credit union industry must find a way to help smaller credit unions compete in the marketplace.