Merger World Is Topsy-Turvy
The merger game–its timing, procedures and practices–is coming in for new scrutiny and debate this month among a coterie of analysts and top credit union CEOs.
Some of the rhetoric over NCUA policies along with CEO frustrations about weakened peers acting too late in solving their problems was triggered by last month’s long-anticipated conservatorship of the $318 million Telesis Community CU and its eventual management takeover by a California competitor.
“I think there may be 15 to 20 of these conservatorships still managed by NCUA, and what has been the result?” asked Burniske. Conditions have not improved, “and they may have spent 100 grand to pay the salaries for one of their managers to run the place, and the assets are still toxic.” He said his Virginia credit union long ago was a bidder for the still-conserved Keys FCU in Florida, one of the early sand state Great Recession casualties seized by NCUA in September 2009. Its net worth remains at 2.9%.
Burniske maintained that “it is NCUA’s responsibility to serve as a regulator, not a manager. It’s like the military in Iraq. Their role was to create peaceful and sustainable stability. Not to serve as a police force.” The NCUA needs to apply the same concept “to fulfill its intended role as a regulator.”
“The bottom line is that merger activity has been slow in both banks and credit unions for the last five plus years,” said Bartoo. He said the FDIC and the NCUA have different management models but deal with two very different financial communities and neither show financial risk to their current balance sheets based on the numbers of distressed businesses.
But Duffy of Sandler O’Neill said he basically agrees with Bartoo from a certain perspective. But when you broaden it to cover the last 15 to 20 years, mergers occurred in the banking industry in much greater numbers to the point where 10% of bank industry assets reside with banks less than $1 billion in assets but in the credit union industry 52% of assets are with credit unions below $1 billion.