# Manitoba credit unions



## NorthernRaven (Aug 4, 2010)

The entry of yet another Manitoba credit union into the high-interest field has finally got me asking the question "What is it about Manitoba?" There seems to be a gap between "ING and friends" (currently around 1.5%), and the highest tier (2%+). In that top group, there is Ally (presumably as it continues to build customers) and a couple of western CDIC banks (which don't extend the high rates to GICs). All the other five are Manitoba credit unions. That would seem to suggest that there is something about the Manitoba environment that is conducive to this, and I was hoping someone here knows what it is.

I can understand a virtual operation offering higher rates, and new ones starting out at the top end to attract business, but why only Manitoba CUs are entering the ring and not those from other provinces is the puzzler. One guess is that it is something about their regulatory environment (perhaps different guidelines on non-resident deposit levels, or national advertising). Or perhaps the Manitoban CUs are sharing the work in developing some of the backend systems for this. Or they somehow have a bigger outlet for loans that makes recruting higher-cost deposits worthwhile, compared to credit unions in other provinces. Otherwise you'd expect at least an entrant or two at the top end from the credit unions in, say, BC, or some other province, and I can't seem to see any.

I've tried asking the Manitoba deposit corp, one of the CUs, and even tried to find a wise and grizzled reporter at the Winnipeg paper, but no luck so far.


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## plen (Nov 18, 2010)

I noticed this in Manitoba's budget highlight at:

http://www.ey.com/Publication/vwLUAssets/Tax_Alert_2010_No_10/$FILE/TaxAlert2010No10.pdf



> Credit unions and caisses populaires profits tax: With the elimination of Manitoba’s small business income tax on 1 December 2010, credit unions and caisses populaires would become largely exempt from Manitoba income tax. Commencing 1 January 2011, credit unions and caisses populaires with a permanent establishment in Manitoba will be subject to a 1% profit tax on taxable income in excess of $400,000. Profits will be defined as Manitoba taxable income as determined under federal income tax rules


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## fatcat (Nov 11, 2009)

i have gic's at maxa and they have been very good ..

they are the online division of westoba which is an old credit union i guess

they seem to be jumping on board with the online credit unions

revelstoke out in bc is also fairly competitive

geographic areas build up traditions for certain kinds of businesses, i think of south dakota in the usa which was famous for having all the credit card companies and delaware which is still the place to go to incorporate

maybe manitoba sees a niche and wants to make a name


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## NorthernRaven (Aug 4, 2010)

@plen - that looks like just replacing one tax with another, no real effect, and some of their CU high-interest arms have been around for quite awhile now.

@fatcat - Companies incorporate in Delaware because the state has a crafted set of laws, taxes (or lack thereof) and a court system designed to make it attractive to do so. I suspect it is similar with South Dakota and credit cards - probably something about interest rates or collections or so on. I'd be quite willing to believe that there is some such factor about Manitoba; I just can't identify one.


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## fatcat (Nov 11, 2009)

> I suspect it is similar with South Dakota and credit cards - probably something about interest rates or collections or so on. I'd be quite willing to believe that there is some such factor about Manitoba; I just can't identify one.


 right, i know in south dakota it was that they had no usury laws which other states did at the time, so interest rates could go higher

manitoba might be as simple as just a coincidence


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## NorthernRaven (Aug 4, 2010)

If it were early days for online high-interest, or just one or two Manitobans, I'd be more likely to say coincidence. But 5, with none from elsewhere that I can see, sounds more like _some_ sort of market force, even if it isn't anything particularly dramatic.


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## heyjude (May 16, 2009)

I wonder if it could be that the boring stability of the Manitoba economy may be associated with a lower allowance for bad debts?

Just a speculation.


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## sprocket1200 (Aug 21, 2009)

with the fees they charge, does it matter?


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## Addy (Mar 12, 2010)

sprocket1200 said:


> with the fees they charge, does it matter?


If you are into cash, their fees are a moot point unless you have so little it's not worth considering the interest you receive.

We have our cash with Civic Savings CU, no fees for deposits, one withdrawal free per month. For us, having our emergency funds and cash portion of our savings, even at only 2.1 we make a decent interest return each month all considered.


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## NorthernRaven (Aug 4, 2010)

Interestingly, Sunova (the new Hubert/happysavings.ca people) just got blasted with a cease-and-desist by the Saskatchewan financial regulators, who were complaining about potential confusion over the use of the word "bank" and the lack of "of Manitoba" in references to the deposit guarantee corporation (the full PDF is online). Regina was apparently one of their target cities for bus ads and stuff.

Hubert mentioned the order and seems to be tweaking the wording on their website, so I'm not sure if the Sask regulators blasted first without quietly pressuring them, or if there is a turf war. 

Interestingly, the cease-and-desist from Saskatchewan makes some demands, one being they want a complete list of Saskatchewan residents who have made deposits, with names and amounts!


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## Addy (Mar 12, 2010)

It's good timing for this post. We're moving next Spring/Summer and when we sell our house we will either rent or buy in our new location. I'm hoping interest rates go up as we are leaning towards renting. This would allow us to let ~175K sit in a high interest savings account or something similiary guaranteed (broken into different accounts so as not to go over the insured limit). I'm not sure if it's worth sitting on that amount for two or three years at only 2.1%, but if the interest at these MB credit unions went up to say 4% it may have me reconsidering. Any thoughts on this type of thinking?


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## NorthernRaven (Aug 4, 2010)

An interesting letter from David Newman to the Manitoba credit union regulators, with CCs to various other regulators and such. Newman runs a GIC broker (Fiscal Agents) and was apparently involved in getting the CDIC limits raised a few years ago.

He feels the Manitoba CUs are "_...engaging in aggressive and unsound business practices_". He's concerned with the non-resident aspect, but especially the Manitoba deposit guarantee system, and the sustainability of their interest rates.

On the guarantee front, he's got what seem to be old or wrong numbers - the values are low, and his 129 multiplier should actually be more like 100. I'd be interested to know if DICO (the Ontario equivalent) actually binds the Ontario government to unlimited liability, but if not, I can't see an essential difference between the two. Manitoba's fund is actually much larger proportionally than Ontario's right now (although Ontario provides an explicit line of credit to DICO).

As for interest rates, I'm not sure just how well the spread between 5-year mortgage and GIC rates reflects the overall soundness of a credit union, or whether the spread is dramatically smaller than in the past (which may be his point). I pulled some numbers from Assiniboine's annual statements (they run Outlook), and the Manitoba CUs do seem to spend a significantly higher percentage of revenue on funding costs (interest on accounts and GICs). But Assiniboine seemed to have lower operating costs than the BC and Ontario CU I checked for comparison, which would mitigate things. 

Any banking analysts here who know the issues by heart?


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## fatcat (Nov 11, 2009)

and of course, fiscal agents is in direct competition with the manitoba cu's right ?

i watch the rates and _gic direct_ and _fiscal agents_ are both unable to compete with the manitoba cu's

do i sense a little competition via regulation ?


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## NorthernRaven (Aug 4, 2010)

fatcat said:


> and of course, fiscal agents is in direct competition with the manitoba cu's right ?
> 
> i watch the rates and _gic direct_ and _fiscal agents_ are both unable to compete with the manitoba cu's
> 
> do i sense a little competition via regulation ?


Well, there may be some of that, but if he feels that their rates are worrisome he'd be right to bring it up. I don't know what "agents" he refers to; does anyone know of GIC brokers offering Manitoba GICs?

I'm more interested in why the Manitoba CUs are offering such high rates in the first place, and have never been able to get a convincingly thorough explanation. I've pulled some numbers, and the higher cost of funds seems baked into the Manitoba system. Assiniboine (the Outlook people) last year paid out 2.3% of deposits as interest, and Cambrian (the Achieva people) paid out 2.6%. Next door in Saskatchewan, a couple of their big credit unions were paying out around 1.5% of deposits (and a couple BC/Ont ones I checked were not much higher). Presumably they sharpen their pencils in other areas, but it would seem that over the years the Manitoba system has felt some sort of selective pressure to accept a higher cost of funding. Next door in Saskatchewan the GIC rates are nowhere near Manitoba's.

I'm not sure if Manitoba has lower taxes on CUs, or the Manitoba CUs return a smaller proportion as dividends to compensate. It is a little strange.

The Internet Archive is down this weekend, so I can't track down historical GIC rates - while Manitoba's seem to have been top of the charts in the past as well, I'm not sure if the current spreads are anomalously large, which may be one of Newman's points.


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## Addy (Mar 12, 2010)

I've noticed the CU's mortgage rates tend to be higher, so maybe they break even or make very little on their GIC's, HISA's etc while making more $$ off loans?


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## NorthernRaven (Aug 4, 2010)

No, Assiniboine's 5-year closed mortgage rate is 3.69% (ING's is 3.64%), against their 5-year GIC rate of 3.4% (3.5% through their Outlook online arm). Affinity CU next door in Sask is offering 3.59% on a 5-year mortgage, but their GIC rate is 1.85%, which is derisory. What I can't tell, since the Internet Archive is down this weekend, is whether this extremely small spread is (as I would assume) somewhat atypical.

Again, the interesting thing is what is the business model that has Manitoba rates so high over the past few years. Presumably if they had the Saskatchewan cost of funds they'd be ridiculously profitable, so the extra deposits attracted must pay for themselves in growing the firms larger than they might otherwise be. It might also be interesting to see if the Manitoba CUs return less in dividends, or have lower provincial taxes, or some other factor that compensates for the higher cost of funds.


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## Addy (Mar 12, 2010)

NorthernRaven said:


> No, Assiniboine's 5-year closed mortgage rate is 3.69% (ING's is 3.64%), against their 5-year GIC rate of 3.4% (3.5% through their Outlook online arm). Affinity CU next door in Sask is offering 3.59% on a 5-year mortgage, but their GIC rate is 1.85%, which is derisory. What I can't tell, since the Internet Archive is down this weekend, is whether this extremely small spread is (as I would assume) somewhat atypical.


These are the posted rates, which I'm sure you know but to compare we just opened a mortgage with ING and pay just over 2% on a 4 yr fixed. Assiniboine wouldn't budge much at all on their posted rates. I found many still went with them as they are a smaller, community based FI who gives a lot back to their community (I know because my husband and I did fundraising for a volunteer project he started up in Winnipeg and ACU was an awesome supporter of local projects!).

The GIC rates for a 5 year term do seem pretty high, although I'm with Hubert and get 2.5% in a HISA with me gambling rates will go up over the next five years. Otherwise I would lock in at 3.5%, sounds great!


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## NorthernRaven (Aug 4, 2010)

Addy said:


> These are the posted rates, which I'm sure you know but to compare we just opened a mortgage with ING and pay just over 2% on a 4 yr fixed.


Are you sure that isn't a typo (perhaps 3%) for a 4-year fixed mortgage? If you got 2%, especially from ING, I'd have to suspect your husband is Clyde Barrow... 

I don't own now, but when I did ING used to be a decent proxy for market rates - they weren't the very lowest advertised, but a good benchmark. Big5 posted rates are of course meaningless, but I thought ING was by and large a fixed rate, aside from occasional small promo discounts or the like?


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## NorthernRaven (Aug 4, 2010)

Looking at the Manitoba credit unions is actually rather interesting. I found numbers back to 1999 for Cambrian (the Achieva folks) - I think the Outlook/Achieva online divisions date back to around that time. As well as the margin between loan income and deposit interest, there's a measure called "efficiency", which is a ratio between income and operating costs excluding interest (a lower number is better). Most of the non-Manitoba credit unions I looked at run 70-85%, and in the mid-90s that's where Cambrian was. Their margin between loan and deposit interest was over 3%. In short, Cambrian pre-1999 looked a lot like many non-Manitoba CUs of 2010.

In 1999, Cambrian's efficiency was 68%. In 2000, it made a sharp drop to 61%, and it has worked it's way down to around the 55% range in the last few years. Their interest margin shrank below 2% (1.6% in 2010), as they paid out high interest rates on savings and GICs, including Achieva, but their lower costs meant they could afford this. 

It's rather fascinating to watch the change over the years, like evolution. Crosstown Civic (the Accelerate folks) have an even better efficiency number in the high 40s. Assiniboine runs closer to 70%, but you can still see the lower operating costs. If you took Affinity or Connexus (a couple of Sask CUs of Assiniboine size) and imposed Assiniboine's cost of funds ratio onto them without changing anything else, it would pretty much wipe out their annual net profit. The Manitoba CUs seemed to have tuned themselves into high rate-paying greyhounds.


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## fatcat (Nov 11, 2009)

> The Manitoba CUs seemed to have tuned themselves into high rate-paying greyhounds.


 right, much like south dakota became a credit-card haven the mcu's have carved out a place as interest payers ... i think fiscal is just a pile of sour grapes .. for those of us with reasonable amounts of money in mcu's, i don't see any risk at all ... this seems part of the ever-increasing _competition by regulation_


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## NorthernRaven (Aug 4, 2010)

fatcat said:


> right, much like south dakota became a credit-card haven the mcu's have carved out a place as interest payers ... i think fiscal is just a pile of sour grapes .. for those of us with reasonable amounts of money in mcu's, i don't see any risk at all ... this seems part of the ever-increasing _competition by regulation_


The higher rates in general seem to be balanced by lower cost elsewhere. But it does seem like the margin between their GIC and mortgage rates is historically narrow. My guess is that they are loath to reduce rates unless necessary, since they probably need the inflows from the rest of Canada, and need to be competitive with the other Manitoba CUs. They are probably willing to tolerate a narrow margin to avoid bringing their rates down; if the Bank of Canada now holds off on what earlier this year were expected rate hikes, you might see them have to pull back the GIC rates - the current spreads are probably eating away at their margins. 

Also, with rates this low, there are probably a lot of people locking in long-term mortgages, but avoiding long-term GICs, so there is probably some pressure to attract long-term deposits to better match their assets and liabilities. Conexus is a large CU next door in Saskatchewan. Their posted GIC rates are big-bank dismal from 1-4 years (1.25-1.70%). But their 5-year rate is 3%! Either a weird sale, or they are having trouble attracting enough long-term money.


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## NorthernRaven (Aug 4, 2010)

What seems to have happened is that the Manitoba CUs have pretty much locked their 5-year GIC rates so far this year, at that 3.4% (branch)/3.5% (online) rate. 5-year posted mortgage rates, however, seem to have wandered down from around 4% to the 3.69% that most are posting. So the current spread has eroded to the current narrow value. It probably isn't a big deal over a short period, since depositors are probably skewing away a bit from long term (so they are paying out less interest), and they have a large gap between them and the non-Manitoba folks, so they can probably hold their rates for awhile even if the general market (and their mortgage rates) creep up a bit. 

If mortgage rates don't go up a bit in the next while though, you might see those GIC rates shrink a little. I notice that Westoba (the MAXA people) have theirs at 3.15/3.3%, and have their mortgage rate posted at 3.75%. Interesting, they were also the least "greyhound-like" of the four who had online divisions in 2010, going by their interest margins and efficiency rates.


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## v_tofu (Apr 16, 2009)

As a Former Manitoban i have the answer, although a bit controversial.

It actually has to do with a minority group. And they are the Mennonites/hutterites/whateverites. Alot of these folks are straight up cash and very little debt credit use.

Either due to their religion or lifestyle, They hardly ever hold any credit. I personally witnessed a transaction for multiple Farming equipment (John deeres, combines, etc) and it was $2 million CASH transaction. No joke. And apparently from talking with my friend, thats how all those communities buy their equipment. No financing or leasing.

Apparently the group or community usually uses these credit unions because of their aversion for big banks. this is just stuff I hear so take it for what it's worth.


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