The events unfolding at Synergy Financial, a former credit union that converted to a bank in 1998, depict all that can go wrong when a credit union sells out. The Cranford, New Jersey-based Synergy Financial isn't doing well if you look at some popular performance ratios. Its return on assets and return on equity continue to sink. Its fourth quarter ROA was just .48% and ROE just 4.81%. These ratios lag those of all thrifts, which average ROA of nearly 1.20% and ROE over 12%. Now if you imagine for a moment that Synergy was still a credit union and you spouted off to its credit union members about its ROA and ROE, it's not going to mean much. Members might say, "ROA is near .50%, that's fine with me." Members aren't dumb, but they don't have to worry about these types of numbers – they only have to worry about the CU providing great rates, products and services. When you are stock owned and dealing with bottom line, results-driven investors, failing ROA and ROE numbers mean everything because investors know this level of performance isn't going to help Synergy's stock price. Other numbers at Synergy don't look so bad. Its assets were up over 13% in 2005. Net loans increased over 30%. But despite this, its bottom line numbers lagged its peers. What's going on? Well the first place to look is the board and management. There is too much money going somewhere, right? That's not me talking, that's PL Capital Group talking. Even as I am writing this Synergy Financial is under attack by its largest shareholder, PL Capital Group, which owns over one million shares in the bank, representing almost 10% of outstanding stock. PL Capital is not happy. They are not pleased with the bank's performance and consequently are targeting the bank's board and management. PL Capital says the compensation of Synergy's leadership is not commensurate with Synergy's performance. It notes that in the three years that Synergy has been public, its officers and directors have earned a total compensation package worth $14.4 million, which is more than Synergy's net income – $12 million – for all three years combined. PL Capital clearly wants to change the leadership at Synergy, but complains that Synergy has a number of barricades in place to prevent that. PL Capital laments that with Synergy's staggered director classes, with three of the nine directors up for election in any given year, it would take a minimum of three years to replace the board. It also protests the fact that only Synergy's president or board can call a special meeting of stockholders where conceivably the stockholders could vote out the entire management team. I can go on and on, but basically PL Capital is putting on a full-court press to get on the Synergy board to try and force change. They are questioning anything and everything. PL Capital even went to court to try and obtain Synergy's list of stockholders, obviously to be able to communicate with them. It succeeded and will use the lists to communicate its plans to stockholders. Interestingly, obtaining member lists could be a vital weapon for member groups to use in fighting a credit union conversion attempt. The turning point in Synergy's financial performance appears to be its initial public offering. Since going public in 2004, its performance has dropped off considerably. Again, as long as it is paying good rates and providing good services, the financials wouldn't mean much to credit union members, but it doesn't have members any more, it has stockholders. This is a key difference between any bank and credit union. Conversion proponents will tell you that mutuals have customers, and these customers have voting rights, just like credit union members. True, but the big difference is a customer's voting power is based on the amount of money on deposit, whereas at a credit union it is one vote per member no matter if you have $10 on deposit or $10 million. When that mutual goes to stock ownership, forget it. Here is where a small minority can take over the institution and the voice of the "customers" of the former mutual become ever so faint in the overall picture. Instead of individual customers, major investors like PL Capital carry the big stick. So what's the point of this column? I have described Synergy's financial situation and the angst it is causing its largest investor. So what? The point is this – money, money, money. Once a credit union sells out and converts it's all about the money. Not just about the money the board and management can make through stock and stock options, but the money that results-driven investors expect to make off of the institution. A small group of people are looking to profit on an institution that was once founded as a credit union made up of members that pooled their money to help all of the members. Synergy is no longer an institution for many, but for a select few. Do you think the founders of Synergy back in 1952 envisioned that a private investment firm would be trying to take over the board because ROA and ROE wasn't strong enough? It's just one more shining example of how skewed the business of a former credit union becomes once it decides to sell out. Comments? E-mail [email protected]