RANCHO CUCAMONGA, Calif. — Leaders across credit union land are buzzing about the impact a merger proposition similar to the one issued by Wings Financial Federal Credit Union could have on the industry going forward.
Some are concerned that the lack of rules in place for "hostile takeovers" of credit unions could set the industry up for a free-for-all making the vulnerable defenseless to any unsolicited proposals. Others–reluctant to talk on the record–are quietly discussing whether such takeovers may actually benefit poor performing credit unions. (See poll on page 3.) California Credit Union League President/CEO Bill Cheney said the league will continue to support Continental FCU in its decisions.
"The league will remain vigilant with regard to this issue and do all we can to ensure the fair treatment of our member credit unions and their members," commented Cheney. "We are confident that our regulators will handle this situation with the utmost care to ensure a stable credit union environment."
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The Minnesota Credit Union Network was asked if a statement would be coming on the proposal, but as of press time, comments were not received. Wings Financial is headquartered in Apple Valley, Minn.
In its March 14 bi-weekly newsletter, the Ohio Credit Union League looked at whether a credit union should worry about being the target of a "hostile" takeover and what features make it a "prime target" for a buyout. When for-profit organizations evaluate buy-out candidates, companies with high capital and inefficient operations are typically ideal choices, said the Ohio league.
Unlike a for-profit institution, credit union members cannot extract monetary value from their credit union's capital, even though they own the credit union and have a claim on its net worth, according to the league.
"In the credit union industry, it's not as easy as cashing in stock," said Dave Fearing, OCUL vice president of business services.
Usually, greater benefits in the form of higher savings rates, lower loan rates, and lower fees are found among credit unions that offer a greater variety of services through spending capital, and those with lower operating-to-expense ratios, according to the league citing CUNA data.
"In the past, the argument for retaining the unique credit union structure versus being bought by a for-profit organization was simple," Fearing said. "Now, the credit union movement is being presented with a situation where the credit union philosophy is competing against itself and a cash incentive."
One certified credit union executive, who wished to remain anonymous, was puzzled that Wings Financial has its sights set on Continental when there are other CUs that would gladly accept the merger proposal.
"Please explain why a billion [dollar] CU like Wings, that claims to want to help other CU members receive more and better financial services has chosen to overlook the 4,000-plus credit unions with modest assets that truly have members in need of a full service financial institution dedicated to the mutual interests of their member-owners," the CCUE wondered. "Why are they making this overture to a $175 million dollar CU that has such excellent capital Wings proposes [i.e. would have to] to pay out a pre-merger dividend averaging $200 per member. Am I the only CCUE who had trouble making Wings FCU's CEO's words match the actions he's describing?"
On a popular credit union blog, one poster wrote "there are probably more than a few supporters of the Wings approach watching–and waiting." The unidentified writer said a 2006 conference featured a breakout session on how banks or thrifts could appeal to customers should a board reject a merger proposal.
"…other credit union CEOs in attendance were weighing in on the topic. We have to believe that others are concocting similar strategies to spring on their unsuspecting credit union brethren; Wings just beat them out of the gate," wrote the poster. –[email protected]
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