What drove Corporate Network Brokerage Services record breaking year?

<p>OVERLAND PARK, Kansas -Corporate Network Brokerage Services President/CEO Brian Hague said there are a plethora of factors that contributed to CNBS’ record-shattering revenue in 2001. Last year CNBS’ total revenue was 35% higher than the firm’s former record set back in 1996. Breaking down the revenue further finds two driving components. One being a 400% increase in transaction revenue over 2000 (a 58% increase over record year of 1996). Transaction revenue is key because that’s where two-thirds of CNBS’ revenue is generated. The second factor was a 31% increase in fee income over 2000. “Fee” in CNBS’ business does not carry the same negative connotations as it does in consumer banking, and what consumer groups are always hawking. Fees in CNBS’ world primarily mean revenue from its ALM services, investment reporting, advisory services, and investment institutes. Fee income is vital for CNBS, said Hague because it represents consistent revenue. Transaction revenue on the other hand can be dictated by the industry’s liquidity position, interest rates, and other economic factors. In 2000 for example the liquidity shortage meant transaction revenue at CNBS was way down. “You want the fee side to give you a more stable revenue source, and to cover fixed expenses,” said Hague. Investment advisory dollars represent the largest area of fee income. At year-end 2001, CNBS had close to $2 billion under management through 36 advisory credit union clients. On the brokerage side (where transaction revenue emanates), CNBS adding 40 CU brokerage clients last year helped drive that 58% increase over its record year in 1996. But there were also economic factors that spurred the increase. Tim Dougherty, SVP of brokerage services for CNBS, said with falling interest rates the credit union industry saw most of their callable investments get called last year. This leaves CUs with large chunks of money that they need to go back out and invest, thus driving transaction numbers up. “A lot of credit unions got burned in callables and had their money handed back to them in a lump sum,” said Dougherty. Despite the flood of calls last year, Dougherty said credit unions are buying callables like crazy this year, and it’s not a bad time to do so because callables make most sense when rates are near the bottom, which Dougherty believes they are. “We have Fed funds at 1.75%. It could go to 1.5%. It will probably stay at 1.75% to 1.5% for six to nine months,” said Dougherty. Whether rates drop a bit more or not, Dougherty definitely doesn’t see the Fed raising rates any time soon. Hague said outside observers may point to the liquidity surge of 2001 as the main reason for CNBS’ record year. While he said that was clearly one of the factors, there’s more to the story. “Liquidity helped. Although if you look at the 12 years CNBS has been in business, average loan to shares in 2001 were just the third highest in our history. The best year for liquidity in history was 1992-93 when the ratio was around 60%,” said Hague. There are some historical factors that can be pointed to for CNBS’ success last year. Up until 1998, CNBS was limited as to what markets it could enter. That’s because prior to 1998 CNBS was owned by U.S. Central. It’s no secret that some of U.S. Central’s corporate CU members were sensitive about CNBS marketing in their states. But when U.S. Central sold CNBS in 1998, it opened the door for CNBS to enter some big new markets, such as California, Texas, Ohio, and Michigan. U.S. Central solely-owned CNBS from 1996 to 1998. Prior to that the firm, which was formed in 1989, was owned by a combination of U.S. Central, CUNA Service Group, and CUNA Mutual. CNBS is currently owned by 19 corporate credit unions. It only offers investment services to credit unions. There was a time when it also served corporate credit unions, but it no longer does as part of certain agreements. [email protected]</p>