By Ray Birch
KENT, Wash.—One merger expert is predicting the recent acquisition of a credit union by a bank will not just set a precedent for similar acquisitions, but will also lead more credit unions to convert to private insurance.
Glenn Christensen of CEO Advisory Services told CUToday.info he expects more banks will consider buying credit unions following the announcement that $700-million First Bank of Berne in Berne, Ind., intends to merge in the $18.4-million Adams County Credit Union in Northern Indiana.
“It's hard to say if it's going to be in the near or far future, but it would not all surprise me if it would happen again, especially as it continues to become more common for credit unions to acquire banks,” said Christensen. “I think more banks are going to look at this type of opportunity now…In many ways the First Bank of Berne transaction will set a precedent for more of these agreements.”
Christensen noted NCUA’s new merger rules that focus in part on greater transparency, including disclosing compensation paid to credit union executives from a merger, may lead some credit unions that sell to a bank to first convert to private insurance, such as that provided by Ohio-based American Share Insurance. Adams County Credit Union is privately insured and therefore does not have to comply with NCUA’s rules requiring transparency in mergers, including disclosure of any compensation paid to any officials.
If a privately insured CU merges with another federally insured CU, it would have to disclose executive compensation, according to NCUA rules.
Charter Conversion
In the First Bank of Berne deal, due to Indiana law, the credit union first must convert to a mutual savings bank charter. Christensen said he is uncertain if this is required by all states, but noted the pathway to a credit union selling to a bank could become not just the conversion to private insurance but also the conversion in charter.
Christensen is also predicting that as more banks buy credit unions, the deals may impact credit union to credit union mergers. He suggested some CU officials may find attractive the higher personal payouts available in bank deals, and that the price of the deals themselves could go up.
“From a valuation standpoint, a bank could look at a credit union deal in the same way they would a bank acquisition, and could be willing to pay more and pay more in executive comps, which is common within the banking world,” said Christensen. “That has the potential of changing what the expectations would be within the credit union community.”
Broader Concerns
Christensen does have concerns over how bank acquisitions of credit unions will affect the broader CU community itself.
“This is taking us down an entire new pathway,” one that I am not certain is best for the movement,” he said. When a bank buys a credit union we're giving up the credit union and its members.”
Christensen said he feel these types of mergers will be all about business and not adhering to credit union philosophy.
“When a credit union merges with another credit union, often the intent is to help members from the acquired institution receive more and better services. That helps the industry,” Christensen said. “There's just been so much talk over the years of retaining our credit union community, and how CUs are unique and wonderful. Credit unions have kept the credit union mentality within the family, so to speak. Banks don’t have a member-first mentality—these deals could have an impact on our industry.”
Uncertain Pace
Christensen again stressed he expects more banks to buy credit unions, but is unsure what the pace may be. However, he pointed to how the pace of credit unions buying banks has steadily increased each year as more credit unions buy banks.
“I think more banks are going to look at the opportunity,” said Christensen, who added that more of his credit union clients today are asking about buying banks. “So the same sort of momentum—I don’t know.”