Colorado credit unions win trust charter

DENVER – Using the cooperative approach, Colorado credit unions are moving swiftly to expand their reach into personal trust services by opening a new CUSO-chartered trust company, Members Trust Co. of Denver, slated to open offices by the latter part of October or in November. A major roadblock to chartering Members Trust, capitalized at $2.7 million by six Denver-Colorado Springs-Boulder CUs, was cleared with a surprising 7-1 vote August 16 approving the formation of the trust firm by the State Banking Board. The State Banking Board is part of the State Division of Banking which regulates banks and trust companies in Colorado. Although the trust CUSO was formed by CUs, which are regulated by the Division of Financial Services, the CUs had to apply to the Banking Board for approval. The Colorado Credit Union System, which is also a minority shareholder of Members Trust and helped guide the chartering, has hailed the Banking Board’s approval as a major step forward for CUs “to reach the niche that traditional trust providers” like banks “are ignoring.” Colorado’s powerful banking lobby, which during the last legislative session defeated League-backed bills for CUs to handle public funds, had also strongly opposed the trust company application. However, the Banking Board, which has a strong banking representation, found nothing contrary or illegal in the CU application and okayed it after a contentious all-day hearing. The six Colorado CUs, as new owners of Members Trust, have a total of $3.5 billion in assets and 450,000 members. They include Bellco Credit Union, and Public Service Employees Credit Union, both of Denver; Credit Union of Denver; U of C Federal Credit Union and Premier Members Federal Credit Union, both of Boulder, and Ent Federal Credit Union, Colorado Springs. Banking Board officials said any challenge to the trust firm would have to come in a state court or before NCUA as the CUSO regulator. “I simply don’t know what we will do,” said Douglas McClure, president of the 125-member Independent Bankers of Colorado expressing disappointment at the board vote. McClure, who also is president of the $50 million Rocky Mountain Bank & Trust Co. of Florence, said CU incursion into the trust field strengthens the argument to tax CUs “since they are now into an area for profit.” The Colorado Bankers Association, which represents both large and small banks in the state, said it would be examining the “legal grounds” regarding Members Trust operation since “there could be a bit of a conflict on who is the primary regulator and who has oversight,” said Jennifer Waller-Ditch, senior vice president. “It’s only logical that as credit unions gain more powers, they be taxed,” she added. Carroll D. Beach, president of the Colorado League, forecast that other state leagues might want to start similar joint CU ventures on trust services, but it would depend on the size of the market. So far only CUs in individual states have set up trust firms on their own including those in Florida and California. Members Trust, he said, may be the first of its kind nationwide to be owned by a group of CUs. Douglas Ferraro, president of Bellco and one of the prime movers on Members Trust, hailed the “decisive” action of the Banking Board and said it “opens the door for other credit unions around the country who may be thinking about trust services” (CU Times, July 11). Ferraro said “I think there’s plenty of excitement about trust services in the industry right now generated by the NCUA.” Beach said the League has had trust services “in the planning stage” for the last five or six years adding the idea “has been floating around and needed some impetus.” The impetus apparently came from Bellco and Ent CU in Colorado Springs as well as others in the six-CU group. Hired as the new president and CEO of Members Trust is Tim Kenczewicz, former chairman, president and CEO MetLife Trust Co. NA, Bridgewater, N.J., a trust subsidiary of the New York insurer. Kenczewicz, an attorney formerly holding senior trust posts with Colorado National and United Banks of Colorado, had previously been president of a Key Bank trust facility in Florida. Kenczewicz said Members Trust, which will serve members under $1 million in assets, will initially have a staff of six and three offices – one in suburban Greenwood Village where Bellco has its headquarters, another in Boulder-Longmont and the third in Colorado Springs in Ent’s headquarters. Kenczewicz said the prime market for Members Trust will be individuals with assets in the $100,000-$150,000 range. Fees will probably be “below a lot of the regional trust operations” in the three markets. Whereas the going fee is 130 basis points for the first $1 million of assets, Members Trust will be charging 90-100 basis points, he said. The ex-MetLife executive, who was hired for the Members Trust job in April, is forecasting 400 accounts by the end of the first year and “break even” by the fourth year with profitability by the fifth year of operation. Members Trust, said a formal release, will serve nine counties “making up Colorado’s Front Range with services that include trust, retirement, estate administration and cash management.” The release added that “individuals and families desiring trust services are likely to value the local nature of a trust company sponsored by local credit unions” which, sources noted, is an obvious jab at the large regional banks which have branches in the Colorado cities but with trust decisions made at home offices outside of the state. The president of the Colorado Bankers Association Peter Y. Waller, of Grand Junction, said he was “disappointed” in the Banking Board vote. He said he was unsure if the association “would want to spend the time and energy” to pursue a court challenge. However, said Waller, who also is president of the $26 million First National Bank of the Rockies, “there are substantive legal issues” surrounding regulation. He called it “unprecedented” that a Banking Board could approve a charter and then “have no supervising authority” over it since that has been left to the NCUA. That is “troubling,” he said. Moreover, the charter approval “has opened other interesting areas regarding competition” and the non-tax status of CUs. Richard Fulkerson, the state banking commissioner, said the lopsided vote in favor of the application by the Banking Board reflected the petitioners’ ability to provide an acceptable detailed plan of operation which meets profitability requirements and “long term success.” “They could see no basis for denial,” said Fulkerson. Agreeing with that assessment was the chairman of the Banking Board, Maurice Goodgaine, who also is redevelopment manager for the Denver Urban Renewal Authority, who said the applicants “met all the requirements.” “I think it’s good for the public to have a little competition,” said Goodgaine. – [email protected]