The Rate of Opportunity

What do the earnings reported by JP Morgan Chase mean for credit unions?


Last Friday, JP Morgan reported earnings for 2010 of $17.37 billion, an all-time record.

The results exceeded analyst expectations and prompted CEO Jamie Dimon to tell reporters that the figures indicated the start of “a broad-based economic recovery” and a probable increase in shareholder dividends.

As journalists noted, the Chase news kicked off the reporting season on Wall Street. Most major banks’ earnings are due this week.

So what do these record results mean for credit unions? In one word: Opportunity.

A primary way Chase is making money is by increasing its customers’ fees. In a November 2010 Washington Post article, Dimon indicated that the bank’s strategy was to pass increased costs on to clients.

“Dimon said he is looking for ways to pass on all the extra regulatory costs to consumers and corporate clients,” the article’s author notes. “Fewer borrowers will get loans and credit cards, he said. He estimates that the passing on costs will reduce the bank’s retail customer base by about 5 percent.”

One result of the “pass-on” is clear: Chase’s retail banking arm reported profits of $708 million in 2010 as opposed to a loss of $399 million in 2009. 

These fees even include the FDIC insurance premiums. At a recent credit union meeting, a JP Morgan e-mail surfaced in a presentation. The precise calculation and charge shown to a customer was shared. For reference, here is the formula.

FDIC rate x days in a cycle x FDIC balance/100/Day Base = FDIC
Here’s an example: 0.0385 x 31 x $235,189/100/360 = $7.80

Finally, every major bank is looking to use the revenue reduction from new debit card rules as a reason to add monthly checking fees across its consumer base.

The fees negatively affect only one part of the equation: the consumer.

Here is the opportunity for credit unions.    

Credit unions have an enormous chance to gain a “land shift” in new members by resisting the temptation to play by the same mindset as banks. Next week, we will provide four profiles of major credit unions that are promoting free checking and using it as the tool for attracting new members. 

Clearly, the lure of fee income is strong. But that doesn’t make giving in the best decision.

With higher earnings and the fees that drive them, the banking industry will be pushing the public to look for options such as credit unions. Will credit unions respond by showing members that the cooperative model puts members’ needs first?


Jan. 17, 2011


  • The headline on our January newsletter read: "Alliance Holds the Line on Fees and Promotes FREE Checking". As you might expect we also included headlines from the Boston Globe, Los Angeles Times and the Wall Street Journal....all referencing "New Bank Fees" and the "Squeeze on Consumers.
    Dennis Sommer
  • While I believe Chip's article makes an excellent point I also believe it applies to a select group of credit unions. On the other hand, many credit unions face a survivability issue with the continuing assessments, interchange fee reduction and a heretofore slumping economy, etc.. All these have strained many credit unions to a point of breaking or, at the very least, entertaining a business strategy of merging or collaborating with others on shared operations for expense reduction.

    I see a great opportunity to have a credit union have their cake and eat it too by adopting a strategy to provide members a better price point than those of the banks. By carefully observing the fees of other institutions credit unions can design a strategy that would charge fees which are less than the banks. This strategy addresses the income needed to sustain the credit union and still affords the opportunity to attract new members. The other consideration should perhaps be the adoption of relationship pricing by giving breaks to those that are loyal members and who help sustain the credit union in terms of income.

    Rock Carter