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?