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NASHVILLE – VolCorp and WesCorp not only have to prove that there are no safety and soundness issues related to their merger, but also that the merger will benefit the credit union members of VolCorp. Regulators typically don’t get involved in the benefits of a merger, but the Tennessee Department of Financial Institutions says the circumstances surrounding this merger demand that it do so. The department recently informed VolCorp that it would not approve the merger of the $26 billion WesCorp and $1 billion VolCorp as it is currently structured. In a letter to VolCorp, the department’s acting commissioner, Greg Gonzales, states that VolCorp was created by legislation from the Tennessee General Assembly – legislation that provided no authority for VolCorp to merge. Gonzales goes on to say that he could accept the argument that VolCorp be permitted the same powers as a natural person CU under the state act (which includes mergers), but the state’s general assembly must still be considered, and it has not expressed any desire for VolCorp to merge. Thus, he writes, the merger would have to have “compelling” benefits to VolCorp members in order for it to be approved. Gonzales said he is aware of the rate benefits WesCorp will bring, but noted that VolCorp’s members could get those same rate advantages now by simply joining WesCorp on their own. WesCorp CEO Bob Siravo said there’s a counterargument to that position. “That sounds good on paper, but is not practical. The infrastructure we will bring is going to be the most beneficial, especially to smaller credit unions. A lot of things happen on the payments side of the house that is built in our infrastructure. We invest in all the newest technology. It’s not just about rates on investments,” said Siravo. Gonzales also cited capital issues, stating that he is “particularly concerned with the relatively small amount of capital in the form of reserves and undivided earnings to be returned to member credit unions.” VolCorp has planned to give approximately $4 million in capital back to members, though that number will fluctuate based on its balance sheet. VolCorp CEO Bruce Fahnestock said he is very disappointed with the department’s ruling, and noted that in all prior corporate CU mergers, only one (WesCorp/PacCorp) saw the merged CU return capital. “We’re giving back about 20% of our RUDE. While it’s not unprecedented, it’s extremely rare, and we think it’s very good for members,” said Fahnestock. VolCorp could not pay out all of its capital, because it must ensure WesCorp’s capital level does not go down because of the merger. VolCorp has options. It could convert to a federal charter to bypass some of these holdups or it could act legislatively and have a merger clause added to VolCorp’s charter. Either way, Fahnestock said he is confident the deal will get done. “We’re moving forward. We’ve been in contact with NCUA and the state. The regulator said we needed some compelling member benefits, which we feel that we have and our members feel that we have,” said Fahnestock. He noted that WesCorp has been very supportive, but at this point it is a VolCorp issue given it is the state regulator in Tennessee that is in control. Gonzales told Credit Union Times this is a “precedent setting transaction” for the department so all aspects must be scrutinized. “If the parties come back with another request, we will certainly give it consideration,” he said. Asked whether the department was bowing to any pressure being put on it from Tennessee CUs seeking a larger capital payout, Gonzales said the department doesn’t consider any politics in its decisions. [email protected]

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