COLUMBUS, Ohio — Are the roughly 44,000 members of the $586million Nationwide FCU being offered enough money for their creditunion?

That is one of the questions some credit union, bank and thriftobservers have begun to ask as news of the deal whereby NationwideBank, the newly chartered thrift which is a subsidiary of theNationwide financial services firm, will buy Nationwide FCU hasstarted to sink in.

Once NCUA has finished reviewing the CU's disclosure documentsabout the deal, the bank will offer the CU's members $79 millionfor the CU, or roughly 20% above the CU's equity as of March 31.The members will then have a period of 90 days to review thedisclosures and will have to vote in the end on whether to acceptthe deal.

At a time when, by contrast, some credit unions are convertingto bank charters and expecting their former members to buy sharesin the equity they already own in stock offerings, reaction toNationwide's offer to pay Nationwide members was received with alot of enthusiasm in many quarters.

“When what is happening in so many other places amounts tolittle more than thievery, the fact that Nationwide was willing totry to do the right thing means a lot,” said Jim Blaine, CEO of the$13 billion State Employees' Credit Union, headquartered in Raleighand a longtime critic of credit union-to-bank conversions.

But Blaine said that his comments and support for the purchaseonly reflected the degree of transparency that the CU has offeredso far. If that transparency were to diminish, if the CU were tohold back on letting its members and the public at large know abouthow it and Nationwide Bank arrived at the $79 million price tag,then the deal might face more of an uphill climb, Blaineexplained.

Some financial industry observers are raising questions aboutthe purchase price because, it seems to them, the bank is getting alot of value for the $20 million premium it has offered for theCU–a premium which will be even less by the time the dealeventually closes because, over the intervening months,Nationwide's equity will increase while the $79 million price staysfixed.

The most tangible things that the bank will gain, the sourcesobserved, are a head start over the introductory hurdles thatstartup banks face and a pool of deposits and committed depositorsfor whom the bank will be a somewhat known quantity.

“In a certain sense those two things are priceless, because itis very difficult to assign prices to them,” explained John McCune,a thrift and banking analyst with SNL Financial, a Charlottesville,Virginia information and research firm which specializes inanalyzing the financial services industry and appraising financialservice firms.

McCune explained that a thrift just starting up, if it movesaggressively, will still take roughly 18 months to turn aprofit–and many startup thrifts take 24 and even 36 months to makemoney. By buying the CU, the bank may find a significant way to cutthat time frame because it will have a pool of deposits anddepositors with which to work from the start.

Nationwide will also benefit from having less “runoff” thanother bank purchasers might have, McCune said. “Runoff is theamount of deposits and depositors that a purchasing bank runs offbecause of the deal,” McCune explained. “Either they don't like thedeal, they don't trust the incoming bank or whatever. If a large,clear majority of the credit unions' members vote to approve thepurchase, Nationwide will start with people who have signed off onthe change.”

McCune said the unprecedented nature of the proposed purchasehas also been one of the things, which led some in the bankingcommunity to raise questions about the price.

“There just haven't been too many of these,” McCune explained.“So there really isn't a body of data to use to compare andcontrast them.”

The one thing that banking sources can point to are sales ofindependent thrifts which, since 2005, have generally sold forpremiums of hundreds of percent and which make the price the bankhas offered for the CU seem inexplicable. “A lot of people I knoware incredulous,” said one banking source that declined to speakfor the record. “They are asking me, would the members of a CUreally sell for 20%?” Nationwide CEO Paula Edwards and the CUdefend the price, noting that it came about after a specialcommittee met for over 16 months to determine a price that would befair and that the committee had no active Nationwide employees onit. Edwards added that the committee had been aware of whatindependent thrifts were selling for, but had determined thatNationwide's case was significantly different.

“First, we have no employees,” Edwards said. “All of myemployees are employees of Nationwide insurance and Nationwidealready provides us with much of our back office and other supportthat an independent thrift would have to provide on its own.”

The CU also has very few members, “a handful,” Edwards said, whoare not Nationwide employees or the immediate family members ofNationwide employees.

She also added that all of Nationwide's business loans, whichreached $216 million as of March 31, are made to Nationwideinsurance agents and are, in effect, guaranteed by Nationwide. Thisrepresents a huge percentage of the credit union's business thatwould not necessarily be there if the CU were an independent creditunion or thrift. Finally, she noted that the CU had received anindependent assessment of its worth, performed by an outside firm,in order to get a clear figure about what the CU would be worth.Edwards said the CU had not yet decided whether to release theassessment to the general public, but added that the CU memberswould have a chance to include their assessment in their evaluationof the deal. Shape of Things to Come?

But where Edwards argued that there are factors which make theNationwide case and its purchase price unique, McCune and otherbanking analysts note that a premium of even 150% or 200% of equityfor an independent CU might not be out of line and would still beconsidered inexpensive compared to the prices commanded byindependent thrifts. “It's a very interesting idea with a lot ofdifferent ramifications,” said Keith Leggett, a senior economistand leading CU critic with the American Bankers Association.

Leggett noted that there is a lot of interest among someinvestment bankers who see the possibility of simply buying acredit union, rather than taking the time and money to try to getone to convert, to be a very viable option. But Leggett alsopointed out that there might be regulatory questions, which need tobe overcome if there started to be a significant trend in bankpurchases of CUs.

As an example, Leggett pointed to the data banks had to collectabout their branch level operations, deposits and lending, andpointed out that these are among the data that federal regulatorslook at when approving bank mergers. Currently, NCUA doesn't askCUs to report branch level data and that may be one of the changesto reporting requirements that would have to be made if bankpurchases of credit unions were to become more routine.

But another banking source said he expected that if banks didstart buying credit unions, the phenomenon would be more likely toremain an occasional development where banks might approach CUswhich have access to particular markets or market niches and whereCU members would be willing to sell. “Everyone has a price,” theanalyst noted, “but it's unclear that a bank will have the rightprice for a credit union,” he said.