Time to Strike Is When Spotlight Is Off
I think it's safe to say that some of us are now able to get through a day of credit union business without hearing about the hostile takeover attempt Wings Financial FCU engineered on Continental FCU.
It's nice isn't it? The outrage that surrounded this event was palpable. I had never seen such widespread concern. Many believed, me included, that it was a watershed moment that could negatively affect credit unions forever.
But in the end, good triumphed over evil (had to say it) and Wings is still a safe and sound sovereign credit union. Tom Glatt has cemented himself as a warrior for credit union principles and has enough fodder to give great speeches for years to come. We can all relax and enjoy the calm.
No, no, no! This is not the time to relax, this is the time to get something done. The spotlights are off, the headlines have dwindled, here is when credit union lobbyists and regulatory experts should be in full bloom trying to get either laws passed or regulations added to prevent future hostile takeover attempts.
It's time to get crafty. Get provisions added on to much bigger bills where a hostile takeover attempt guideline would be just one little part of a much broader bill. Bankers do it. They try and fly under the radar and get pro-banker bills passed. In North Dakota a few months ago bankers pushed through a law that would permit credit union-to-mutual bank conversions of state chartered credit unions by 2009. It's a little strange because North Dakota has no mutual savings banks! However the bankers are looking ahead. There has been talk about North Dakota restoring mutual savings banks in 2009. This wasn't all the bankers' doing. A credit union in North Dakota, St. Alexis Community CU of Bixmarck, wanted the change so conversion would be an "option" for the future. But the provision snuck through with little fanfare.
That's what credit unions need to do now with hostile takeovers.
NCUA has to step up as well. When the dust settled in the Wings case, NCUA, rightfully so, was able to bask in the glory of being right. It maintained all along that it had enough on the books to properly regulate the hostile takeover, while the credit union trade associations said since this was a new phenomena NCUA had to act fast. NCUA was right not to act. Given the scrutiny it is under as a so-called "cheerleader" regulator (I know a lot of credit unions that would disagree with that.) it would have drawn much unneeded criticism by taking hasty measures. However, NCUA did luck out a bit on this one. Wings' offer to pay out $200 per member was its downfall, but future attempts won't be as easy to shoot down. The bad guys learned from Wings and will surely find a more bullet-proof way to attempt a conversion.
So while NCUA proved right in this case, the credit union trade associations should be working with the regulator to make some subtle changes that could help protect against takeovers. State league lobbyists should be doing the same on the state level. In fact it will probably be easier to get changes done on the state level.
Speaking of protecting credit unions. If the industry doesn't act now, it could find itself with the same problem that conversions have become. Bank conversions are still a much bigger concern than hostile takeover attempts, but only five years ago they were of very little concern. In fact, credit union lobbyists allowed bank conversion rules to be part of a compromise with H.R. 1151, the Credit Union Membership Access Act. Who can blame them? With the field of membership threat back then, it must have seemed relatively painless to allow conversions to banks with only a majority of voting members required. Now we know how wrong that was.
Hopefully most credit union leaders understand what is happening here. That compromise is now in line to be reversed, but it's a tough road. A provision in the Credit Union Regulatory Improvements Act would require 30% of a credit union's membership to participate in the conversion vote in order for it to be valid. It would also require the board of directors to hold a general meeting one-month prior to sending out any notices about a conversion vote that contains a voting ballot.
Could the conversion provision become a compromise item for the bankers when you consider what else is in the bill? Raising the business lending cap to 20%, instituting risk-based capital, expanding credit unions' investment powers, and getting rid of the 3,000 cap for voluntary mergers involving multiple common bonds, etc. Unfortunately I doubt it. It's good to see CURIA has hit 104 co-sponsors. Momentum is building, but many more co-sponsors need to be added for CURIA passage to be realistic. So far CURIA has been a nice way for members of Congress to show credit union support without any real possibility of the bill coming to light. Hopefully that will change.
The industry can't ease up on the hostile conversion issue because Wings/Continental is over. This is the time to act.
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