ALEXANDRIA, Va. — True to its word of not taking a passive role in the oversight of mergers, NCUA said after reviewing the offer by Wings Federal Credit Union to pay members of Continental Federal Credit Union $200 apiece if Continental merges with Wings, the regulator has found that the payment is “impermissible” under the provisions of the Federal Credit Union Act. In a statement released April 17, NCUA said it has advised Wings Financial that its proposal, made in connection with a campaign to encourage members of Continental to support a merger of Continental into Wings, would constitute the equivalent of a pre-merger dividend to Continental's members to accomplish a partial equalization of shares.

Furthermore, NCUA said it has informed Wings Financial that the FCU Act does not allow per capita dividend payments, and that no other legal authority exists for a federal credit union to make this kind of payment. Additionally, “the unilateral promise of a dividend by the continuing credit union in a proposed merger, without the approval of the merging credit union, is not permitted,” the agency said. NCUA has requested that Wings Financial immediately discontinue the activity in question. Wings Financial said “While we are continuing to evaluate the NCUA's position, the larger point is that the Continental FCU belongs to its members and that money is rightfully theirs.”

According to a Wings Financial spokesman, the CU is “pleased with the response we have received so far from the [Continental] members we've spoken to regarding the benefits the merger of our two organizations would create, particularly the real dollar annual benefits that an average [Continental] member stands to gain from a merger.”

Wings Financial representatives were in Houston on April 17 meeting with Continental employees and the reception has “been very warmly received,” the spokesman said.

“Our plan is to continue to talk about those benefits and to introduce ourselves to [Continental's] members,” said the Wings Financial spokesman.

NCUA did not want to comment on what would happen if Wings Financial does not comply. Since the $1.6 billion Wings Financial submitted its fourth merger proposal to $182 million Continental on March 9, the Apple Valley, Minn.-based CU has continued to offer Continental's more than 25,000 members $200 each should a merger between the two CUs ever occur. Continental, which said it had rejected Wings Financial's merger proposals on three, separate occasions, turned down a fourth offer on March 20.

Nearly two weeks prior to issuing a statement on the Wings payments, NCUA Chairman JoAnn Johnson reassured the credit union industry of the agency's role in emphasizing the importance of member rights and benefits when considering any credit union merger or conversion to another charter. Specifically, Part 708b regulation states both boards must approve a merger proposal before NCUA will consider it. In an April 5 letter, Johnson also said that the agency was committed to making sure that all statutory and regulatory requirements are satisfied when it comes to mergers and is prepared to address NCUA rules that are “found to be inadequate or insufficient to provide member protection, transparency and fairness.”

NCUA's request to stop offering the $200 payments comes one week after attorneys for Continental issued an April 9th cease and desist letter to Wings Financial calling for an immediate end to “unlawful conduct, all misleading and deceptive statements and the website Wings Financial is running at continentalwings.com.” That Web site also contains a petition that encouraged Continental's members to get Continental's board to enter into merger discussions and initiate a mail ballot indicating merger interest. At press time, the Web site was still running and had been recently updated with two newspaper articles. Continental's attorneys had said stronger legal action would have ensued against Wings Financial if NCUA had not stepped in. Meanwhile, Continental is breathing a sigh of relief, hopeful that it can really move forward now that NCUA has reviewed the $200 payments. “We appreciate the careful review and timely, decisive action our regulators have independently taken on this issue that is so important to both our credit union and our industry,” said Tom Glatt, president/CEO of Continental FCU. “In affirming that a per capita payment offer is illegal, the NCUA has put a stop to this unprecedented, misleading and unlawful campaign that showed such callous disregard not only for Continental FCU, our board of directors and our members, but also for our entire credit union system, its principles and codes of conduct.” NCUA “has removed a direct threat to the member-owners of Continental FCU, who very much opposed this blatant attempt to steal their credit union,” Glatt said. “Thanks to the NCUA's independent involvement and oversight, we can now put this issue behind us and return our full attention where it should be–serving the needs of Continental FCU member-owners by providing the best value possible.” Not too long after Wings Financial submitted the merger proposal, the regulator offered a hint that there might be questions about the $200 payment offer. NCUA said at the time the payment is a proposed expense for which the board and management is accountable to Wings' members. Meaning, the CU should be prepared to satisfy their members that it is an expenditure that is in their best interests, the agency said.

On its continentalwings.com Web site, Wings Financial has touted that “if Continental FCU paid you an amount from their reserves similar to that proposed by Wings, we believe Continental FCU would damage their earnings power and therefore have to charge even higher loan rates, pay lower dividend rates, charge higher fees, and/or reduce service.” Continental said in response that the $200 payments “are a quick fix” and “pales in comparison” to what the CU will offer members long term. NAFCU said it is pleased with NCUA's position on Wings Federal Credit Union's $200 payments and is hoping it will end the financial institution's “hostile takeover bid” of Continental FCU.

“We are very pleased that NCUA is being vigilant in analyzing and acting upon Wings' hostile takeover attempt of Continental Federal Credit Union,” said Fred Becker, president of NAFCU. “We know that NCUA will continue to enforce its rules and regulations, which are designed to both protect the safety and soundness of credit unions and protect the interests of America's credit union members.”

NAFCU had previously called for “rules of the road” for the unprecedented merger attempt.

“NCUA's action, which hopefully ends Wing's hostile takeover bid, goes a long way toward protecting and preserving the value that credit union members have worked hard to create for themselves,” Becker said.

Meanwhile CUNA President/CEO Dan Mica said there's still a need for guidelines should a “hostile” takeover attempt occur again. Like NAFCU, CUNA had also felt NCUA needed to implement new rules regarding merger protocol in light of Wings/Continental.

“This most recent development underscores the need for procedures and guidelines for the movement to refer to in dealing with these sorts of merger attempts,” Mica said. “Right now, we are without any maps or charts–a situation that cannot continue should additional proposals as these be presented or acted upon in the future.” –msamaad@cutimes.com

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NCUA Steps In, Finds $200 Payment Offer From Wings to Continental's Members 'Impermissible'

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