OVERLAND PARK, Kansas – With more corporate credit unions offering broker/dealer services on their own or via partnerships, Corporate Network Brokerage Services' ownership may very quickly go from corporate credit unions to natural person credit unions. CNBS, a broker/dealer currently owned by 18 corporate credit unions, has a private placement offering out to its natural person credit union clients for them to become CNBS owners. Previously credit unions could not be shareholders of CNBS. At the same time that natural person CUs are being invited to buy into CNBS, corporate credit union owners, via a tender offer, are being given the opportunity to sell back their ownership stake to CNBS. Why the sudden change in CNBS' ownership goals? Last year CNBS and U.S. Central ended a 10-year non-compete clause six years ahead of schedule that now allows Credit Union Investment Solutions, Inc. (ISI), a U.S. Central subsidiary, to market broker/dealer services to CUs, while CNBS can now offer broker/dealer services to corporates. U.S. Central's ISI doesn't really go directly to credit unions. It features a shared-employee model, whereby a corporate CU employee will become licensed by ISI and essentially work for both ISI and the corporate selling securities to credit unions. The key is the shared employee remains on site at the corporate. Since the non-compete ended, six corporate CUs have signed up with ISI to offer their broker/dealer services, thus these corporates became direct competitors of CNBS. CNBS said it doesn't make sense for direct competitors to be CNBS owners. Ownership Up For Grabs The 18 CNBS corporate shareholders are not being forced to sell their ownership in the company, but it appears those that have signed with ISI or are planning to start their own broker/dealer will likely sell. "I think this is an opportunity that CNBS is presenting to those corporates who no longer want to be involved to get out of CNBS and not take a financial loss. I don't think there is any bad blood. They're moving off in their direction and corporates who have established broker/dealers are moving off in their direction," said Kevin Brauer, COO of Empire Corporate FCU. Empire is a CNBS shareholder which several years ago started its own broker/dealer, MemberTrade Financial Group, a broker/dealer Empire hopes to take national some day. "We were going to use CNBS for back-office. They decided they were unable to do that. We were kind of left holding an investment (in CNBS) and holding our own broker/dealer. I think it could definitely be perceived as a conflict of interest," said Brauer. He said the tender offer would basically give Empire its investment in CNBS back; it wouldn't see a loss or a gain. Some corporate leaders say the reason only 18 corporates are owners of CNBS is because some corporates disagree with CNBS' centralization approach. While corporates wanted CNBS licensed reps to be working out of corporate CU offices, CNBS wanted trading kept centralized in their Kansas offices. "Most of us feel that what we do best is working within our own relationships with credit unions. The way to really build more business and add more value for our own shops is by housing a rep in our own office," said Dave Brehmer, president/CEO of First Carolina Corporate CU. First Carolina is a CNBS owner that recently signed with ISI to offer broker/dealer services to its CUs. But unlike Empire, Brehmer said First Carolina is still undecided as to whether or not it will sell its ownership stake in CNBS. Brehmer doesn't see anything wrong with a combination of natural person CUs and corporate CUs owning CNBS. "I have always thought that combination ownership makes a lot of sense. It will concern me if it swings too much one way or the other," he said. One thing Brehmer's corporate will analyze is what CNBS' future holds and if by corporates pulling out of CNBS, whether CNBS will lose some marketing power offered by the corporates. "I'm not sure that each credit union that buys in with CNBS will necessarily generate interest from others to use their services. The idea of having corporate ownership was we have the ability to market to a broad base," said Brehmer. CNBS President/CEO Brian Hague doesn't believe that natural person vs. corporate ownership will hurt CNBS' sales. "Obviously we disagree with that notion or we wouldn't be pursuing this course of action. Future results will determine who is right or wrong," said Hague, who couldn't say much. Since CNBS is a registered NASD broker/dealer the private placement falls under the typical SEC gag order. "CNBS legal counsel has advised us not to comment while we have a private placement offering and a tender offering outstanding," said Hague. Is Local Edge Needed? Regarding the argument that CNBS could sell more to CUs if it decentralized and allowed CNBS reps at corporates, Hague has always argued against that. A recent survey of credit unions conducted by CUNA for CNBS found that most credit unions didn't care whether a rep was at the corporate or not. More ammunition for Hague's belief that reps aren't necessary is in that same survey CUs ranked "local presence" as last in a list of factors in deciding which broker/dealer to use. However some corporates say the local presence is exactly what their members want. Georgia Central CU, an original shareholder of CNBS that also signed on with ISI, said it too will sell its shares. "We started with ISI at the end of 2002 and a number of credit unions coming on board say they like having someone in-house at Georgia Central to talk about brokerage products," said Amy Fuller, COO of Georgia Central. Fuller said if Georgia Central retained its ownership in CNBS it could be perceived as a conflict of interest. She also noted that the corporate is getting involved in asset liability management as well via an SS&C Technologies product. She noted that there are Georgia CUs that will likely stay loyal to CNBS and that's fine with the corporate. "We really think that CNBS always did a good job for our members," said Fuller. Eric Kenealy, president/CEO of SunCorp, said SunCorp will relinquish its ownership stake in CNBS. SunCorp is also a CNBS shareholder which recently signed with ISI for broker/dealer services. "We feel the need to have brokerage in-house, to give our members a one-stop shop where they can buy marketable securities. I'm sure CNBS will be very successful. They have a lot of bright people and to a great job for credit unions," said Kenealy. This ownership change comes at a time of unprecendented growth for CNBS. It has set records in important categories such as revenues and fee income. Its fee income pays for about half of its fixed costs. Of course these gains come in a time of surging liquidity. [email protected]