By Keith Leggett
Credit unions acquiring banks is a new reality and is unlikely to be reversed. As of May 16, there have been 50 completed deals and 11 announced, but not consummated, deals. Given this new reality, there is a need for greater transparency with regard to credit unions that are acquiring banks.
Unfortunately, in many cases, these transactions do not disclose the purchase price for the bank.
Of the seven deals announced so far this year, only two deals disclosed the purchase price – DFCU Financial’s acquisition of First Citrus Bancorporation and Arizona Federal Credit Union’s acquisition of Horizon Community Bank.
Since the beginning of 2016, Hovde Group was an adviser for 19 deals involving a whole bank acquisition by a credit union. However, in 14 of these transactions the selling price was not disclosed.
The only reason we know the purchase price for these few transactions is that the banks were publicly traded and had to disclose this information to their shareholders.
A Material Event
Since these transactions are large, they should be viewed as a material event by the credit union. As a result, credit unions should disclose the purchase price.
Credit union members, as owners of their credit union, have an interest in knowing how much their credit union is paying bank shareholders. This would allow credit union members to determine if this transaction is in their best interest.
Also, the American taxpayers have an interest in these deals. Unlike banks, credit unions are exempt from federal taxation. Taxpayers need this information in order to make an informed judgment about how the credit union tax exemption is being used.
Furthermore, credit unions should disclose that they are not misusing their tax exemption by overpaying for these deals. This would require looking at other bank merger transactions and comparing the price to book value of these deals.
NCUA Should Issue Rule
If credit unions do not voluntarily disclose this information regarding whole bank deals, then the National Credit Union Administration should issue a proposed rule requiring credit unions to publish this information.
Disclosing the purchase price of these transactions will provide credit union members and taxpayers with greater transparency about how these credit unions are deploying their tax subsidy.
Keith Leggett is a former senior economist at the American Bankers Association and blogger on credit union issues.