Merge or Convert? Consider a Third Option
A March 27 article on CUTimes.com (“Citing HAR-CO Conversion, Maryland Bankers Assail Credit Union Mergers”) suggests that conversion is an option to merger and nontaxed credit unions should stop taking advantage of their status and follow the HAR-CO model.
Kathleen Murphy of the Maryland Bankers association sites the merger between SECU of Maryland and Anne Arundel County FCU as the poster child of the abuse of tax status of credit unions in this matter.
When I worked for a certified public accounting firm that had a bank and savings and loan client base along with a credit union operation, I was exposed to the bank merger process. A rule of thumb for a quick determination of bank franchise value was a multiple of the acquired bank footings. Basically it is equal to reserves and undivided earnings in a credit union. Two times was good, three times was great and four times was cause for champagne. In credit union terms, a 9% capital credit union could have a capital value of 20% to 30%.
Back to merger without proper determination of credit union value, the merging board is not providing members with a fair understanding of their rights without a proper liquidation value of the credit union. Plus, why not give members the right to take their money to the credit union of their choosing. If they do it after merger, they are losing their stored value.