Healthy challenges for CUA

Ian Rogers

CUA mascot JACK, in the pre-Covid summer

Might mergers into health insurance be on the horizon forCredit Union Australia,? Or the sell-off CUA Health and quadrupling-down on basic banking and friendly advice.

CUA has options but the banking division may not be firing all that well - maybe sell that off too.

People’s Choice Credit Union had a much better FY2020 than did CUA, its partner in the Mutual Marketplace shared-services joint venture.

Among the leaders of the resilient mutual bank segment in Australia and still number one in the sector by asset size, CUA is on the rebound from the pandemic, the 2020 financial year a little less profitable than 2019.

At A$37.3 million the CUA group net profit fell a tad from $37.5 million in FY2019. And an ROE only a credit union could live with of 3.4 per cent, the mutual bank in the last year doing a poor job of generating its own capital.

Receivables didn’t move much, to $$13.6 billion from $13.4 billion.

Deposits is the growth story for CUA, up $500 million to $11.1 billion and the deposits-to-loans ratio could do with more of a nudge. Still, 5 per cent growth.

The banking division is making mischief. The profit before impairment and income tax took the kind of deep knock that alert the banking pack and regulators they are seeing some of the trouble they are looking for.

Pre-provision profit for CUA fell to $69.4 million from $77.8 million. The impairment charge more than doubled to $18.8 million and this won’t all be pandemic-related.

Nor will CUA be alone in reporting a shaky 2020 profit.

CUA Health has to be one division drawing focus from Paul Lewis, the chief executive and his board.

Mutually-owned private health insurance providers are as challenged as those in the profit-oriented flank such as Medibank Private.

With more than 80 credit union mergers under its belt and always alert for others that will create member value and entrench its banking business franchise, it will come as no surprise at all if Lewis steers CUA into one of two things. Either Lewis offloads CUA Health, or the business is folded into a mutual insurance play of some kind.

Health insurance: is the future for CUA in health or mostly in health? Is Queensland superstar Credit Union Australia wanting to tough it out banking?

One of many neobanks and one of many with credit union roots, CUA - as mutual ADI sector leader - will be looking for all the growth by merger it can digest. Quiet for a long time on the merger front, pandemic dynamics bring instability and opportunity for the likes of CUA.

Quiet for too long, this is one reason thinking CUA M&A framed around much other industry M&A might be baking.

AMP Bank. ME Bank. Suncorp Bank. Maybe BNK. IN1 Bank, some say other neos as well: there plenty of ADI licences for sale in Australia and too few qualified buyers.

CUA Bank, this rebranding is presumably ready. A demutualisation? Probably not but always an option.

With total members' funds of $1.1 billion CUA might sell at a $3 billion or more valuation in an ASX listing any time it seems apt.

For now, most of its capital is tied up in a banking business that at the moment looks like it either got too little or too much of the Brisbane sun.

Mutual health insurance needs a champ. I used to be in Teachers Mutual, which is a fine example of the many mutual health organisations for an enterprising CUA Bank to consider.

There’s a lot of beans in a cash exit for members - $2000 each at current NTA value and maybe $5k or more.