Beyond Emotion, Buzz, Wings' 'Takeover' Sounds Alarm on Complacent Credit Unions
TAMPA, Fla. -- Do unsolicited mergers have a place in the credit union industry particularly for those that are struggling and would welcome the opportunity to merge to stay competitive? The industry frenzy created by the unprecedented way $1.6 billion Wings Financial Federal Credit Union has pursued $182 million Continental Federal Credit Union has led to some credit unions quietly wishing the Apple Valley, Minn.-based Wings Financial would consider them for a merger. Some have disagreed with the approach and tactics Wings Financial has used, which include soliciting Continental's members to ask Continental's board for a vote through a petition and repeated attempts seeking to merge, but beyond the emotion of it all, are hard and immediate strategies needed by some credit unions to survive.
Most are reluctant to speak about the sensitive topic on record. Still, mergers certainly have their place in the industry, but it really depends on the motives behind who's buying or selling, said Bucky Sebastian, president/CEO of $2.1 billion GTE Federal Credit Union and spokesman for the National Center for Members Trust, an entity that provides legal assistance and support to members who wish to challenge the conversion of their credit unions to banks. "The truth is in the cost of delivering quality service to a field of membership based on costs of technology, personnel and compliance," Sebastian said. "The days of volunteers and mom and pop are numbered." With that said, Sebastian emphasized that the way Wings Financial is going after Continental has not been "the best approach." "We're a cooperative movement. We're not an aggressive, combative movement," he said. "If you approach someone with a merger and they rebuke it, that should be it." Sebastian said if anything, the Wings/Continental matter has sent a wake-up call. The co-founder of Callahan & Associates, who also served as executive director and general counsel at NCUA in the 1980s, recalls the demise of the savings and loan industry and can't help worrying about those credit unions that have become complacent.
"I don't think there will be a demise of credit unions but one of things I worry about is the credit unions that are self-liquidating. Some, in an attempt to turn things around, will do something that's not smart," he said. "It's a far better avenue to merge with a credit union voluntarily when you're healthy and strong rather that wait until it's too acute of a problem." When it comes down to it, members want and deserve the best that their credit unions have to offer and boards should be prepared to deliver, according to one industry expert.
"As a member, I want to belong to a credit union that can do fantastic things for me," said Tony Ward-Smith, CEO of Ward-Smith & Co. a firm providing credit unions with "high performance" counsel, membership surveys and planning workshops. "But if [credit unions] are just cooking along and there's this other credit union over here doing big things, I want that one. That's the competitive market speaking."
On a regular basis, credit unions should conduct examination of their offerings to stay competitive, Ward-Smith suggested. If merging is a consideration to remain viable to members, the "most sensible" strategy is to tweak offerings and make them better "in every possible way" so a credit union can be ready "if someone knocks on the door."
Ward-Smith believes Wings Financial was "gutsy" with its merger approach towards Continental, but at the same time, the financial institution may be feeling "good and clumsy" too.
"Wings is being very entrepreneurial about it. Competition is tough, he said. Beyond what has happened, "are credit unions trying to be the best performers or are we toddling along just making sure we meet the CAMEL rating? With strategic planning, mergers have to be discussed just as much as it is when a CEO retires."
All along, Wings Financial has said it has better products, services and rates and more branches to offer Continental's members. Continental, which rejected Wings Financial's proposal on March 20 and has said this latest approach marks the fourth time a merger has been sought, has countered that it has strong net worth and capital and is in the process of rolling out several new initiatives including an expanded ATM and shared branching network.
"'Hostile mergers' do not appear to be a rational financial bet," said Jim Blaine, president of $13 billion State Employees' Credit Union. "The 'target credit union' has too many easily used 'defenses,' including pay-out of capital, liquidation, or selection of a 'less hostile' partner," Blaine acknowledges that consolidation within the movement will continue and "mergers have always been an important alternative."
"A credit union 'on the attack' would appear to be wasting member resources in an expensive, improbable effort," Blaine said, adding on the Wings/Continental matter, it "would appear in this particular merger that one of the boards and its manager have run out of ideas. Perhaps a merger is needed for that credit union."
Honing in on one potential merger candidate may be setting a credit union up for ultimate failure when that financial institution has taken the painstaking time to do due diligence, said David Bartoo, president of Merger Solutions Group, a division of Bartoo Associates, LLC that helps credit unions with the merger process.
"Whether you're $1 million or $100 million [in assets], you need to look at every single option," Bartoo said. "The biggest element in any merger can't be found in a manual. The human element has to be looked at too [and] if the merger proposal is truly in the best interest of the members."
With the industry having roughly 8,000 credit unions, at some point, there may be 6,000 and then 3,000 credit unions, simply because economies of scale are "difficult" and an already competitive environment will become even more so, Ward-Smith predicts. The bell has certainly sounded, he warned.
"It's come to this: do credit unions have a place in the marketplace anymore? Are we doing remarkable things in the marketplace? It's wake-up time for credit unions. This is a dramatic wake-up call." --firstname.lastname@example.org