I hate to say I told you so, but I did. When the news broke ofWings Financial FCU attempting to engineer a hostile takeover ofContinental FCU, there was a lot of hysteria.

Specifically CUNA and NAFCU were pounding on NCUA's door to dropeverything and stop the merger in its tracks. Rule that it was nota “cooperative” merger and thus should be killed, or that it didnot have the regulations on the books to handle hostile takeovers,they said.

What struck me and many credit union leaders I am sure as thereal opening was the $200 payout. After all, $200? What did thatnumber mean? Could a credit union really promise an arbitrarypayout? How did it come up with that number? Was that fair to thefolks with lots of money in the credit union who would besubsidizing the payouts of the members with a $5 balance? How couldone credit union offer a payout to members of another credit unionof which it has no control of their finances? Why could one CUassume the 16% capital of another CU was their's for thetaking?

It was a strange “what if” type offer with no clear formula fordetermining the $200 payout.

NCUA was no dummy here. It picked up on Wings'inconsistency.

What's good about this scenario is NCUA had something on thebooks to deal with the $200. It didn't have to cause a big stir onCapitol Hill. It didn't have to add a reg that would have drawn theire of bankers and more importantly elevate the profile of theWings/Continental fiasco to lawmakers. I think the tradeassociations were playing with fire in their aggressiveness.Fortunately NCUA didn't bite, otherwise this story would have seeneven more headlines.

NCUA ruled authoritatively with a couple very good points:

oThe Federal Credit Union Act does not allow per capita dividendpayments.

oPromising a dividend to the members of the to-be-acquiredcredit union without that credit union's approval is notallowed.

It's cut and dry but solid. I know Wings will strike back, but Ithink they are out of luck. That $200 promise was a gross error ina seemingly well orchestrated plan to take over Continental.

Here's an interesting tidbit. It amazes me that the CEOs ofthese two credit unions never talked about this potential merger.From what I understand there was no phone call from Wings CEO PaulParish to Continental CEO Tom Glatt. I have been asked thisquestion many times by CEOs looking to approach another CU for amerger. They often inquire as to whether that is OK, or should itbe done by a board member. What's wrong with an exploratory call toa fellow CEO?

Inquiring CEO: “Sure things are going great here Bob, but we arelooking to possibly do a few mergers to build our base.”

Responding CEO: “Interesting, no we're not looking at any mergerdeals now, we have enough on our plate.” (Hint, hint).

Is that so bad? I don't think so. There are also plenty ofthird-parties out there acting as merger brokers, so take advantageof them if you're in the merger market.

While the Wings/Continental saga is fascinating, I was moreintrigued by NCUA's recent proposed rule on executive compensationin mergers. The rule requires merging federal credit unions todisclose any material compensation–a 15% increase or $10,000 ormore–to any of the executives' salaries or retention plans.

This empowers members. I think it's a good move, especiallygiven what the GAO said about credit unions needing to be moreforthcoming with executive pay.

It might cause some credit union executives to pause. I know ofsome merger deals that have been mighty sweet for certain execs,especially those leading the acquired credit unions. No one issaying they shouldn't be compensated, but seeing it all out in theopen might paint a better picture of why some of these deals getdone. This rule could especially come into play with majorcorporate credit union mergers. Some corporate leaders have alreadytold me that the way they read the rule it applies to corporates aswell.

Speaking of corporates, not only has NCUA made it clear thatmoney shouldn't be paid out in the Wings/Continental case, but italso said last month that corporates cannot pay back capital inmerger deals. NCUA said that defeats the whole purpose of buildingup capital for a safe and sound network. Ironically, I think themore acquisitive corporates out there are breathing a sigh ofrelief. Now they have a ready-made answer to the members of theacquired corporate regarding their capital. I am probably in theminority, but I think it makes sense. Why should credit unions havetheir capital paid out if it will be transferring to the corporatethat acquired their corporate? Yes, I know I can be accused ofbeing hypocritical because in the case of credit union conversionsor buyouts I would like to see members have the chance to get theircapital back, but I think that is a very different scenario thancredit union-owned organizations like corporates.

Finally, NCUA has also proposed allowing members to petition toview non-confidential credit union documents. If this coversmembership lists, this solves a big problem some member groups hadin fighting conversion attempts.

All in all NCUA is trying to make things more transparent. Whocan argue with that? –[email protected]