In a landmark ruling, the FDIC last week gave approval to a credit union-bank deal by which the $1.3 billion United Federal Credit Union of St. Joseph, Mich., can buy the ailing the $80 million Griffith Savings Bank of Indiana, according to attorneys representing UFCU.
The transaction had already won NCUA approval.
Management of the Michigan CU previously hailed the merger as an industry breakthrough in opening the doors for troubled thrifts or perhaps even community banks to legally become absorbed by healthy CUs.
The key to the transaction is that CUs can purchase the assets of the ailing thrift rather than take on the charter, which would be prohibited, explained CU lawyers. Griffith has agreed to shed a portion of its assets to conform with NCUA field of membership regulations as they apply to UFCU, officials said.
Michael Bell, a Niles, Mich., attorney representing the Kotz Sangster firm of Detroit, credited Gary Easterling, president/CEO of UFCU “with coming up with the idea and after looking at the concept, understanding it had never been done before, we asked ourselves a rhetorical question, why not?”
In addition to safety and soundness issues, Easterling also saw “two great hurdles or barriers to such transactions–FOM and the second being impermissible assets or investments,” said Bell.
The plan was to make the bank's current customers members of the credit union. He added that “impermissible assets or investments are a bit easier to deal with as you can take advantage of a short time window allowed by the NCUA regulations to divest of them after the transaction.”