By Frank J. Diekmann
Hey, is that chapter meeting getting a little dull? Looking to add a spark to the next league dinner and maybe even see who can turn that salad fork into a weapon? Then allow me to suggest you just say one word: mergers.
Last week I used this space to address an ugly reality within credit unions, which is many mergers aren’t being motivated by what’s best for the membership but by what’s best for the respective CEOs (and in some cases board members) at the disappearing CU.
If you think people didn’t have just a wee bit of feedback on that, you really need to get out more, because I heard from all corners of Credit Union Land.
To quickly recap, as I wrote, there are more than a few large credit unions dismissing any pretense of cooperation and instead going full carrot and stick mode with smaller credit unions to more or less force mergers (the carrot—perhaps I should spell that “karat”—is a substantial financial package paid to the CEO at the smaller CU out of its capital to take the deal; the stick is the threat to take an offer straight to the board and cut the CEO out of a job and retirement money).
Let me run the yellow Highlighter over what I stressed last week—this isn’t true in ALL mergers, and where there is a business case to be made that demonstrably shows how the members benefit from the combination, I’m behind it 100%.
But what I will never support is hiding big exit packages from the members. You can’t go around for years or even decades wearing the white hat and preaching from the good book of credit union democracy about how every member is an owner, and then conveniently decide there are some things the owners don’t really need to know. When something is being hidden, it tells you all you need to know right there. Now, the good news is NCUA is out with a proposal requiring disclosure, as CUToday.info reported here.
What Credit Unions Have to Say
So, what have credit unions had to say in response? I promised anonymity to those who offered feedback, and many did. Here’s some of what I heard:
- After saying “I agree with you 100%,” one person thought the trend toward M&A in credit unions is the result of more “banker types” in the industry.
- “I’m sure you hit a nerve with this,” said one CEO. “I’ve tried to bring this up before, and I was shot down.”
- One person told me there is a broader “moral” issue at work than just CEOs and some boards cashing in—and that’s those CUs not using the cash they have in capital and investing it in the credit union. This person cited a CU he knows of with 40% capital that has no desire to merge, nor does it plan to distribute any of it back to the members, or even use it for product or service upgrades.
- Another person also said boards are an issue, but not for the reasons others think. Instead, he said many CUs that could use a merger will never consider one because board members don’t want to give up their one or two paid vacations every year to a CU conference.
- “Your article said it all,” wrote one person, “but as you are well aware there is little, if any, support for this issue among CUs, CEOs, the trades or the regulators - all demur out of apathy, fear, or self-interest, it's maddening!”
- In the interest of full disclosure, I was told by one person that my vision of credit union mergers was “overly dark.”
- As I mentioned above, NCUA is out with a proposal that requires far more disclosure of packages being offered CEOs in mergers. That motivated one person to write and observe that it was also NCUA that earlier put the kibash on the credit union-to-bank merger trend by changing the rules to require 20% of eligible voters to vote in favor of abandoning the CU charter, and not a majority of those voting (which is pretty easily manipulated). This person suggested the same standard be brought to merger votes.
- Another person wrote to say my column on mergers came at the same time he had spoken with a fellow CEO at a billion-dollar credit union that was seeking to merge with a smaller CU. The CEO of the smaller shop said she was open to listening to the offer, but the opening ante was nine years of salary/consulting fees, as she had already been offered as much by another CU, thanks to the high capital at her credit union. Nine years!
- One CEO remarked to me, only half in jest, that he begins to question the job he’s doing when he doesn’t field a merger proposal every few months.
- Finally, I heard versions of the same refrain from countless people, all saying they felt a bit helpless and were sincerely worried about the future of credit unions in the United States.
What can you do? Should they be worried? Let me know what you think.
Frank J. Diekmann is Cooperator in Chief at CUToday.info and can be reached at Frank@CUToday.info or followed @FrankCUToday on Twitter.