DFCU Financial is "Spinning" Like a Top
I have just finished reading the latest in a series of Credit Union Times' articles about the decision of DFCU Financial's Board of Directors to recommend to their members that it be converted to a mutual savings bank. Wow, what spin! These pro-conversion folks are amazing. They can spin just about anything to fit their plans when they want to convert a credit union. If the credit union has net worth of 8%, they say they need to convert in order to raise more capital. If net worth (like DFCU) is over 12%, they say they need to convert in order to take advantage of the lower capitalization required for banks with no mention of why they increased net worth from 8% to 12% over the past five years. They say they want the "ability to serve the broader public" but, have they applied for a community charter from NCUA? I may be wrong, but I kind of doubt it. They say they are concerned about the possibility that "as a large credit union" they might be taxed in the future. So somehow they are better off by paying taxes sooner rather than later? Looks like Alan Theriault did a great sales job convincing them with his line of bull that CUNA and the other trade associations have a secret plan to trap the big credit unions with their credit union charters even after they get taxed (see his letter to the editor, CU Times Nov. 30, 2005) and DFCU's board reluctantly decided to get out now before they get trapped. One of the articles also suggested that DFCU anticipated possible problems meeting its CRA obligations as a bank. I'm still waiting for the spin on how that will be made easier after they start paying their taxes. This credit union is large ($1.8 billion), very profitable (1.9% ROAA), highly-capitalized (12.1% net worth) and has an extraordinarily clean loan portfolio (.14% delinquency and .29% net charge-off ratios). This is NOT a credit union that should have any concern about, as it put it, its "ability to meet the future needs of its members in the economically challenged and low-growth Metropolitan Detroit market." To the contrary, they are extremely well positioned to meet the needs of their current and future members if they really cared about their members. No, in my opinion, this is not about what is in the best interest of member/owners, it is about what is in the best financial interest of a select few. DFCU will almost certainly become another example of a group of "insiders" who figured out a way to game the system and cash in. Most of the spin is designed to confuse the members and, my guess is that it may also make it a little easier for some of the insiders to use a mirror. Based on at least one study that I have seen, these insiders can expect to end up pocketing between $25 and $40 million dollars after they finish the process of converting the mutual savings bank to a stock-owned institution. This study also suggests that CEOs typically receive about 25% of this amount. Undoubtedly the spin will be, "currently, there are no such plans". But, when the deal does get done (as it almost inevitably will), it will be fully justified by the "outstanding leadership, talent and skill of the management team and board of directors" or words to that effect. The hard working credit union member/owners of DFCU deserve better than this. Marshall Boutwell President/CEO Gwinnett FCU Lawrenceville, Ga.