As reported in the April 12 edition of Credit Union Times, Iparticipated in a panel discussion on credit union conversions atthe University of North Carolina School of Law's Banking Institutea couple of weeks ago. Others on the panel included DianeCasey-Landry, CEO of American Community Bankers, John Ryan,regional director of the Office of Thrift Supervision's SoutheastRegion, and Gerard Comizio, a lawyer with considerable experiencein charter conversions of all types. The audience consisted mainlyof attorneys, scholars, some regulators and bankers. Our panelfollowed previous sessions focused on data security and the BankSecrecy Act. To say it was a somber crowd is a grossunderstatement. I've been to see the Tampa Bay Devil Rays play theKansas City Royals a few times and the crowds showed moreenthusiasm! Regardless, our little band of diverse “experts” triedour best to raise the consciousness, if not the passion, of thishighly educated assemblage. David Morrison correctly reported thatour panel's purpose was to discuss credit union conversions.Specifically, we were asked to offer our opinions as to why creditunions would consider converting, who should play a role in thatprocess, and whether credit unions that have converted or plan toconvert have been or will be successful. David also reported that Iappeared to be frustrated by the lack of understanding that myfellow panelists exhibited as to the core issues of memberownership. He was also correct with that observation, up to apoint. My frustration was not at their inability to grasp this keyconcept. I think they do understand – they just choose to ignoreit. In fact, I left that panel with a clearer understanding of thebanking community's tactics with regard to conversions. Here are myobservations: * They see credit union conversions as ourkryptonite. Diane Casey-Landry said that she is thrilled to betalking about conversions as opposed to taxation. While thetaxation issue continues to fail to get meaningful traction, shesees conversions as a real opportunity for success. If they areallowed to proceed without a factual analysis of the real impact onmember value, bankers believe the credit union community willrender itself irrelevant. * NCUA has become the major target. Thebanking community is using its considerable resources and contactsto impugn the credit union regulator in Congress and in the courts.They understand that by neutering NCUA's ability to effectivelymonitor them, conversions would be allowed to proceed with minimaldue diligence. Mr. Ryan of OTS was subtle but quite clear in hiscriticism of NCUA as it has sought to protect the rights of creditunion members. * The banking community insists on suggesting thatcredit unions are only converting to mutual ownership, which theysay is not inherently different from their current structure. Whilethere are some notable differences in the two entities, this isreally a moot point. The only former credit unions that retain orplan to retain mutual ownership are quite small. Tellingly, between1975 and 2004, assets held by mutuals declined from over 23% of alldepositories to 1.4%. A large mutual thrift has become as difficultto locate as Marvin Umholtz's credibility! Even Diane Casey-Landrywon't suggest that any large credit union seeking to convert willretain their mutual structure for long. * A catch-phrase that thebank trades, attorneys and regulators like to use is “marketdiscipline.” They theorize that once a credit union becomes astock-owned entity, those stockholders will demand a higheraccountability than currently exists. This position resonates withthose familiar with equity markets. It could actually be aworthwhile discussion except for one glaring question: Who wouldbenefit from this “market discipline,” assuming it really happened?It certainly won't be the current members whose ownership stake hasbeen transferred to the new stockholders and who end up paying morefor their financial services as a result of the inferred “marketdiscipline.” * We often hear that members will have an opportunityto purchase stock and therefore will have meaningful ownershipafter the mutual converts to stock ownership. This just doesn'thappen. A review of previous mutual-to-stock conversions indicatesthat the average member participation in the stock offering is lessthan 5%. They either don't understand the voluminous prospectus,they don't have the resources to invest or both. The overwhelmingmajority of stock is acquired by insiders (key management andboard) and outside investors. * Which brings me to my finalobservation. Few people want to discuss the reality of insiderprofit-taking – certainly not bank spokesmen (or women), theirregulators or the officials of the converting credit unions. Iprovided an analysis, prepared by a legal firm that specializes inconversions, that shows exactly what a conversion to stockownership would mean to insiders at Suncoast. Even my fellowpanelists didn't try to rationalize my very realistic potentialwindfall of $35 million, which would be attained without a penny ofmy own money being placed at risk. They prefer to point out,correctly, that any real gains are governed by the rules of thebank regulators. In other words, it may not seem fair, but it islegal! I'm sure some folks in the banking community, and even inthe credit union community, might dispute my observations. A largerpercentage will simply suggest that they've heard all this before,but there is nothing that should be done about it. They argue thatcredit unions that want to convert should be able to do so and thatthose of us who protest have no right to do so. The suggestion isthat we are only trying to protect ourselves, our tradeassociations and our regulators. Well, I think I could go alongwith those arguments if we could agree on the following twoactions: 1) A converting credit union should present a reasonablebusiness plan that shows that a charter change will benefitexisting members in the long run. By necessity, the plan wouldexplain how they will deal with the additional expenses oftaxation, return to stockholders and additional regulation (CRA)when calculating the benefits to those existing members. Anobjective analysis performed by a qualified third-party would beimportant. 2) A converting credit union should fully explain andjustify or repudiate (now that would be different!) the significantmonetary gain that insiders will realize from the inevitableconversion to a mutual holding company or stock-owned bank. Don'thide behind OTS rules – give the real numbers. I'm sure they knowexactly what's at stake. There are certainly other options thatcould bring this process out into the light and give itcredibility, but it seems to me if we take care of member value andinsider windfalls, most of us could agree that we're on a “levelplaying field,” as the banking community is fond of saying. Andjust think how much harder Diane Casey-Landry's job would be!