SHREWSBURY, N.J. — The latest corporate credit union merger marries the $28 billion WesCorp, San Dimas, Calif., with the $4 billion SunCorp, Westminster, Colo.

This merger comes just a month after the $11 billion Southwest Corporate, Dallas, and the $1 billion Northwest Corporate, Portland, Ore., announced merger plans. There is also the pending merger of WesCorp with the $1 billion VolCorp, Tennessee (see sidebar).

Last year saw the launch of Members United, the new corporate created from the merger of Empire and Mid-States, which to date is the largest corporate merger ever.

SunCorp CEO Tom Graham, on the job less than two years, said the board has been looking at various scenarios to keep the corporate strong for a few years now.

SunCorp considered a number of options: selling off its item processing business, itself going out and acquiring other corporates, keeping the status quo, etc., but didn't see those as long-term solutions.

“Our board felt our best decision was to find a larger partner to bring value to members. We have $4 billion in assets, we're kind of a national corporate, very strong in five states. But we're a tweener, sort of too large to be large and too small to be the type of small corporate that can survive because they have a very unique marketplace,” said Graham.

Just a few years ago SunCorp was one of the corporate network's true movers and shakers, closing two mergers of its own in about a two-year period. It acquired Utah-based Rocky Mountain Corporate and Nebraska Corporate Central.

“Our members have been very loyal to us. But our fiduciary responsibility has always been to get them the best value. One of the conclusions we've made with this merger is our members are going to make between $8 and $10 million per year in rate compression and fee reduction. That's absolutely significant,” said Graham, who replaced former SunCorp CEO Eric Kenealy. Graham came from the natural person side. He led Manhattan Beach, Calif.-based Kinecta FCU for a number of years. Graham is also very familiar with WesCorp, having served on the WesCorp Board prior to joining SunCorp.

Graham said choosing WesCorp was more about just pricing and scale. WesCorp's stability and innovation gave SunCorp a comfort level. “I think one of the biggest misconceptions about WesCorp is about how well they serve the broader credit union community. They spend a lot of time and effort helping all credit unions, intermediate and small ones,” said Graham.

He said SunCorp's smaller credit unions will immediately benefit from WesCorp's one-tier money market account. He said SunCorp has multi-tier accounts, offering better rates to larger CUs that have more money on deposit, which favors larger CUs over smaller ones with less on deposit.

SunCorp did seek multiple merger offers from corporates. Graham would not discuss the candidates.

Graham also cited WesCorp's “unique offer” to return money to SunCorp members. SunCorp's membership shares and retained earnings will transfer in total to WesCorp, something NCUA's Office of Corporate Credit Unions said it expects in merger deals going forward (see sidebar). However, WesCorp will give members an option to transfer their paid-in-capital shares to WesCorp at the highest rate it pays, or have the PIC paid out to them. SunCorp members have about $32.7 million in PIC.

Both WesCorp and SunCorp have item processing operations in Salt Lake City. There was some friction between the corporates a few years back when a couple of the largest Utah credit unions moved their item processing business from SunCorp to WesCorp.

Graham said SunCorp considered partnering with WesCorp on item processing and selling its operation. “As we looked at that we felt we could lose between 30 and 40% of our asset size because of the synergies between the deposit side and payment business,” said Graham. If SunCorp got out of that business it feared it would lose deposits because if WesCorp or some other player was doing the settling, SunCorp members would have to transfer the money back to SunCorp. Merger On Top Of Merger

For WesCorp, this deal means it has two mergers in progress simultaneously. WesCorp CEO Bob Siravo expects the VolCorp deal to be done by June (see sidebar). Siravo said SunCorp will bring expertise to WesCorp. “They are a front runner in certain phases of item processing. They have a great investment staff,” said Siravo, pointing to SunCorp's investment guru Mark Schieffer, who is well respected in the corporate network.

Siravo said while WesCorp continues to do mergers, its intent is not on taking business from other corporates, but from regional broker dealers. “Our focus is going to be on those pieces of business credit unions don't have. About 70% of the investment pie is still out there in the noncorporate world, and about half of the payments business,” he said.

WesCorp will add two seats to its board and one seat to its supervisory committee for SunCorp representation.

Siravo said WesCorp is committed to growing the business in SunCorp's territories. He said WesCorp has done this with past mergers, such as the former Hawaiian corporate, PacCorp, where WesCorp has made inroads in the item processing business by forming an item processing CUSO with Hawaiian credit unions.

“The team approach that WesCorp utilizes to address member concerns and customize balance sheet and/or payment system solutions have restored a sense of trust and confidence with our Hawaii and Guam members to seek help first within the credit union system before looking at alternate providers or facilitators,” said Rand Yamasaki, the former CEO of PacCorp, and now senior vice president of WesCorp's Pacific Operations. Merger-Mania?

Will this merger be the last for a while or will mergers continue to proliferate? Opinions from corporate leaders vary, as they vary on the effectiveness of mergers.

While merging corporates have cited economies of scale and future viability as reasons for merging, some corporate leaders don't believe economies of scale are a major factor for the future, especially given U.S. Central's presence as an aggregator.

“I really believe the future of corporates is found in innovation, not in consolidation. There are lots of folks at least the size of SunCorp that do some amazing things,” said Lee Butke, CEO of Corporate One. He cited Mid-Atlantic's bill pay program, Constitution Corporate's Web design/hosting CUSO, and Northwest Corporate's creation of a business services CUSO as solid examples of how corporates have innovated. He said the future of corporates will be about more than just investments and yield, but helping CUs solve problems and meet market challenges. He noted that Corporate One's new enterprise risk management effort is geared to help credit unions mitigate risk and meet new compliance challenges, and is another example of a corporate attempting to meet a need. Of course, Corporate One is the creator of the most successful product used by multiple corporates that has ever been developed–SimpliCD, a brokered CD product. SimpliCD is now offered by almost all corporates.

“It looks to me there are two models that have developed. Corporates are merging with WesCorp or another big corporate and they are gong to use all of those resources to do everything they need to do. The other model is maintaining independence as we all have access to U.S. Central to do all the things a larger corporate can do,” said Mid-Atlantic Corporate CEO Ed Fox. Mid-Atlantic is in the camp of staying independent, but Fox believes both models can work.

Newly-named Association of Corporate Credit Unions Executive Director Brad Miller said he's constantly asked how many corporates will be around down the line. He doesn't think it's about numbers, but about serving credit unions. “What's going to be important is that corporates are filling a need, no matter how many there are,” said Miller. He did note that as a dues-supported organization the declining number of corporates is a concern for the ACCU in terms of having the resources to fulfill its mission. –[email protected]