Category: Mergers

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The Tragedy of the Commons:  The End of a Movement?

Last Friday’s blog described the multiple losses should the merger of Vermont State Employees (VSECU) with New England FCU proceed on January 1, 2023.

The members lose their credit union; 190 employees their career paths and individual agency; local communities– their partnerships; the state of Vermont– its leading cooperative financial institution; and the overall credit union system, another pubic example of  purpose compromised by leaders’ self-interest.

The tragedy of the commons occurs when persons in positions of responsibility exploit the common resources of the community which they oversee for personal gain.

Should credit union leaders continually seek to acquire and merge sound, long serving credit unions, like VSECU, to fulfill their individual ambitions, I believe this will lead to the demise of the cooperative credit union movement.

Documented Success

VSECU’s example and innovative track record were so successful, that it was the subject of a 15- page analysis by Callahan’s September 2021 Quarterly Report.  Several of these accomplishments were republished in five articles in January 2022 on cu.com, for example this description responding to the COVID crisis.

At September 30, 2022 the credit union reported $1.1 billion in assets;  71,625 members and 9 branches;  $6.5 million in YTD net income and $102 million in equity.  Average salary and benefits per employee exceeded $100,000.

Against this documented track record of long-term innovative performance, VSECU’s merger information offered nothing about the future.   The credit union was already more than full service; it had pioneered special initiatives pursing a “greener” environment.

The continuing credit union’s leaders at NEFCU made no commitments to  VSECU’s 71,000 credit union members’  who hold $922 million loans and $980 million savings.   These members will be under the full sway of a board they did not elect and management that has no connection with their firm.

So undefined is this transaction that both CEO’s admitted in this twitter post, the consolidation would take over a full year to conclude and will require a completely new brand identity and  name.

The back office conversions, product/service alignments and leadership selections will be the top priority at a time when  members of both credit unions face economic uncertainty and anxiety from decades-high inflation.

In the Calling All Members website, the opponents point out that the two credit unions have very different fields of membership, histories, and market focus:

The continuing federal credit union’s Field of Membership will not be based on geography or residency.  It will be numerous employer groups and organizations located in Vt, MA, ME, RI, CT, MI and even groups headquarters in San Diego and San Francisco. . . our statewide cooperative built by Vermonters for Vermonters will be gone—forever.

Why Should Credit Unions Care?

Two typical industry reactions to this latest example of a successful credit union being acquired by another include:  “Not my problem” and  “Didn’t the members approve?”

I believe this pattern of sellouts and acquisitions by cooperative leaders will ultimately lead to the end of a cooperative financial system in America.  Here’s why.

The foundation of every credit union is member relationships.  Almost all credit unions were started with no capital.  They earned the loyalty of members by promising to be a different kind of financial firm.

Member-owners were invited to put their trust in their leaders and board. The  affirmation  of this process  is the democratic one-member, one-vote design.

This merger now places VSECU’s relationships under the direction of strangers.

The action is based on the illusion that size is all that matters. Credit unions have never competed on size.  It is a unique coop fantasy that coops can marry two mice and produce an elephant.

When size is the dominate goal, it becomes a trap of endless growth not creation of member value.

VSECU’s members have continually contributed more than sufficient resources to continue a long-term vision of hope empowered by local control and focus.  The credit union has become a financial “sanctuary” established by members’ belief and trust.

Now their leaders (senior management and board) have abandoned them for the “Golden Calf” of “instant mass,” not substance.  There has been no planning or discernment with those that built the institution and who own it.

The process of voting is nothing but an administrative fig leaf completely under the control and oversight of those temporarily in power and who have a vested conflict of interest.   Only 21% of members voted.  Of the total membership. just 316 votes (.4%)  is the difference between those supporting and those opposing.  This was certainly no vote of confidence in charter cancellation.

It would seem fool hardy to decide the fate of a 75-year old, high performing coop with such a micro thin margin of owner approval.   It also raises the question of how the voting was managed by those who advocated only their side of the issue.

Regulators Abdicate

Regulators continue turning a blind eye and washing their hands of responsibility.

Mergers are the wild west of today’s financial markets.  Second only to Crypto transactions, until that industry’s implosion is over.

Coop CEOs/boards are literally buying and selling millions of member relationships to firms with no connections, increasingly out of state, and who are unconstrained with what they can do with them. These kinds of hollow transactions and disclosures would normally attract the intense scrutiny of an SEC or FTC regulator if these were stock owned institutions.

Coop regulators would rather talk about inflation, consumer protection, fintech, DEI or other current topics rather than the elephant in their room.

Contrary to their assertion that this is just the free market at work, these are back-room deals, negotiated in private, devoid of transparency and without any public attempt to find the “best” deal for members.

Regulators avert their gaze pretending to be deaf, dumb and mute as they oversee the disintegration of the coop system.

Financial Eunuchs

VSECU’s leaders betrayed the trust members gave them.  Credit unions embody the spirit of community.  This action dissolves this special bond built by three generations of members.

The merger destroys the fundamental foundation of a cooperative leaving a financial eunuch in its place.   It has no cooperative character or roots.  Unlike a stock transaction, it lacks the credibility of a market affirming price.  In these transactions, coops have devolved into purely private entities, controlled by individuals acting to consolidate and accrete their own power.

These are not people helping people; rather these mergers demonstrate CEO’s helping themselves.

One can understand why NEFCU’s CEO wants control of 71,000 member accounts with average combined member loan and savings balances of over $43,000. And to be given over $100 million of their collective savings while eliminating this vigorous, innovative competitor.  No more “free” market choice for either firm’s members, or the general public.

This kind of transaction has no economic rationale or “market” driven basis.   There is not a firm anywhere in America, coop or otherwise, who would not line up to accept such a generous “gift.”

VSECU’s leadership had embraced the Global Alliance for Banking Values (GABV) vision of “Finance at the service of people and the planet for the real economy.”

Their collective decision to transfer their fiduciary responsibilities to another firm show that corporate and personal values need not align.  It certainly refutes the biblical adage that a person cannot serve God and mammon at the same time.

The Members Will Respond

Self-interest may appear to succeed in the short term, but in the long term, it fails as a strategy.   When the vision of the cooperative is “all I want is everything” personal ambition will fail for what only a community can sustain.

People are not stupid nor uninformed about these sham transactions.  Most members follow their personal financial situation as a top priority. It is a heightened concern especially in a time of rising rates.  When member generosity and loyalty is compromised by self-interested  mergers, their support will  fade away.

These transactions will end the unique public role for credit unions. Acting like banks, they will be treated  like their for-profit competitors.

Regulators who have approved these pillages of common wealth for private gain will find themselves thrown in with all other financial overseers.  The playing field will indeed be level.

There will be no credit unions on it.  No tax exemption.  Just wealth seeking institutions led by similarly motivated individuals.

Trafficking Relationships & Destroying Good Will

The practice of buying and selling relationships is not new.  It is part of the capitalist markets drive for greater and greater market share.

It is why the states and Congress authorized the tax exempt cooperatives as an option to prevent this exploitation.

A coop system reliant on values as a differentiator cannot long continue with coops and market capitalist wannabes side by side.  For the latter will continue to prey on the former until everyone joins in the rush to get their share of cooperative gold.

Nothing will stop this pattern of private theft until persons of courage and confidence step up to call out this rapacious behavior.  If this fails to occur, then as predicted on the Calling All Members site the national system of cooperatives, just like VSECU,  will be gone-“forever.”

 

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Votes Counted: Closest Election Ever

The elections this week were full of last minute drama.   There will be many consequences yet to be sorted out from the results.

In one  case the vote was especially close.  Only 318 votes separated the two sides.   The percentages were 51.1% versus 48.9%.  Certainly one of the closest elections ever.

Voting participation however was not particularly high in this critical ballot.  Of the eligible voters, only 21% cast votes.

“Highly Engaged Members”

The results were announced in this document on November 9th after polling had closed.

However this was not a republican vs. democrat political election.  It was a vote to extinguish the charter of a 75-year, innovative state chartered financial cooperative.

The official tally was 7,622 for the merger and 7,304 against.   The result is that $1.1 billion VSECU and its 71,000 member-owners will no longer have their own credit union.

It will be merged into the $1.9 billion New England FCU, officially on January 1, 2023.

Voting matters.  By law the charter belongs to the member-owners, not management or the board.  The leader’s duty is fiduciary, to always act in the members’ best interest.  Voting is the core of democratic design.

So when almost 50% of members vote against a strategy that management has tried to sell them for almost a year, such a no confidence result would cause most responsible leaders to rethink their plan.

When announced in February, the opposition was visible, public and well thought out by conscientious members who launched their own website,  Calling all Members.  The State Employees Association Board of trustees voted to oppose the merger.

Even controlling all the communication and marketing resources, member contacts and legacy relationships, the vote barely exceeded the required majority.  The members sense there is something that doesn’t add up in this charter cancellation.

The Merger Math

The merger explanation contained two specific benefits:  the NSF fee would be reduced by $10 and access to NEFCU branches would be opened.  Both “benefits” could have been done immediately without merger.

The reasons for merging was given in rhetorical phrases about future plans and a new partnership, but no specifics.

The math for coop mergers is simple,  1 + 1 = 1.   There is no increase in members, loans, capital or any objective market share measure. Instead one charter goes away along with its independent leadership and business strategy.    VSECU relationships, good will and member loyalty is dissolved after 75 years and three generations of building its unique identity.

There was not even a thank you dividend for the $100 million in collective equity now transferred to the control of a new board and management with their own financial priorities and strategy.  They have no operational or political connection with the 70,000 members who created this common wealth.

The  merger announcement included the VSECU CEO’s observation:  Our membership is highly engaged in the democratic process as member-owners evidenced by the highest credit union voter turnout ever in our history,” noted Miller. “As we look toward the future, we are excited about the opportunity this partnership promises and ready to take VSECU into our united future for all of our members.”

A Weaker System

There are other consequential problems with this transaction.  The first rule of financial soundness is to not put all one’s eggs in a single basket.  This merger increases concentration and reduces diversification for both credit union members and the Vermont system.

Separately these two credit unions competed for market leadership and innovation.  Now they are 47% of the Vermont credit union market by assets and 40% of members.  That concentration should raise both financial as well as public policy issues. As the American Banker’s lead story on February 23, 2022 described the situation, Vermont’s Largest Credit Union Merging with Rival.

Vermont’s credit union system is smaller, losing it largest state charter with total credit unions numbering just 17.  Traditionally, the state charter has been more innovative and flexible than the  federal option, but the largest example of that difference is now gone.  The political sway in state debates is lessened both institutionally and by members.

Here’s What’s Next

From VSECU’s  press release:

The two credit unions will continue to operate separately as VSECU and NEFCU until January 1, 2023. On that date, VSECU will become a division of New England Federal Credit Union. No changes will occur for members of either credit union while integration of systems, services, and products occurs. While there is no firm deadline for the conclusion of the integration, it is expected that the combined credit union will operate as one entity later in 2023.

Currently, it’s banking as usual at VSECU, soon to be a division of New England Federal Credit Union, until we identify and create a new name for our combined organization.”

With  50% of  “highly engaged” members opposing  this cancellation of their independent charter, how many others feel the same way?    The new name, organization and operational integration is over  a year away.   How many will wait around to see what this new identify and “vision’ looks like?

Banking Values?

A number of years ago VSECU became one of a very few American credit unions to join the Global Alliance for Banking Values.

The vision of this global network is:  Finance at the service of people and the planet.

Our collective goal is to change the banking system so that it is more transparent, supports economic, social and environmental sustainability, and is composed of a diverse range of banking institutions serving the real economy.

In support of this effort VSECU announced its own expanded vision five years ago:

 “To inspire a movement that brings people together to empower the possibilities for greater financial, environmental, and social prosperity.”

The goal? To align our organization with a larger movement of values-based and impact-driven organizations in Vermont and around the world.”

Two major initiatives were begun as part of this restated purpose. One was called Powered by VSECU to stimulate social and economic opportunities through innovative partnerships around the state.

The second was Alternative Capital, to help small businesses and coops raise financing including direct investments in coops.  VSECU was  one of the few credit unions making these coop investments.

This new vision from 2016 lasted just five years.   The merger has no expressed vision.  The credit unions will continue what they were doing until they figure out the combined operations and develop a new name and brand.  Both credit unions are giving up their historical legacies.

Many VSECU’s members sensed that this combination promised nothing and took away what the valued.  The fact VSECU management gave up on their vision less than five years for an undefined merger, foreshadows a challenge retaining  the trust of the members who built this organization.

What is Being Lost

More is at stake than just member-owner patronage.

At a time of increasing economic uncertainty and record inflation, the one institution members have counted on is no longer theirs.

Members have lost their capital, their independent leadership, their long established relationships and their unique identity.

Moreover in this stressed economic moment, members of both institutions will spend millions of dollars on vendor contract cancellations, product and operational conversions, and payments due when benefit plans are terminated.

Both sets of employees will eventually be rationalized.   No organization needs two marketing, HR, mortgage lending, and operational leaders.   There is no efficiency from scale without redundancy reduction.  Aspirational professional career paths are eliminated.

The credit union system in Vermont loses its state leader and its ability to influence local regulatory and political institutions when change is desired.   Larger credit unions tend to separate their self interest from the system that spawned their creation in the beginning.

The national credit unions system has lost one of its examples of green leadership.  VSECU Eyes a Green Future in Vermont, is just one story of a series at creditunions.com portraying the credit union’s business innovations. The stories exist no more.  The institution is gone.  Size becomes the goal, not values.

The Betrayal

With widespread opposition and an absence of any concrete benefits or plans, the merger has cost thousands of members and multiple interdependent organizations real losses.   The transaction comes at a time of heightened vulnerability for members and institutions.

Positive momentum is lost.   Priorities become institutional assimilation projects, not serving local communities.

As one member read the posted results he wrote that within a year or so employees will be gone to “pursue other opportunities” and collect the benefits from their terminated plans.  He ended saying:  The board and senior leaders were hired to serve the members. What makes me deeply sad is not the money, it’s the betrayal.”

To build a successful credit union on a foundation on member loyalty and trust takes years.  Both can be lost overnight.  In a single election.

 

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The Missing Framework for NCUA Success (part I of II)

It is an accepted truism for NCUA board members presenting their credentials  for Senate confirmation, or whenever the agency is justifying a new rule, reg or policy, to state their ultimate goal is “to protect the insurance fund.”

Current board members have even called that objective their goal or North Star.  Their primary job.

This assertion turns upside down the logic of means and ends.

What is NCUA’s End Purpose?

NCUA’s primary responsibility, its purpose,  is encouraging and sustaining the resilience and integrity of a cooperative financial system for American consumers.  The FCU Act states:

The term Federal credit union means a cooperative association organized in accordance with the provisions of this chapter for the purpose of promoting thrift among its members and creating a source of credit for provident and productive purposes

To achieve this end, NCUA was given multiple means in the law:  chartering, examinations, supervision, administration of charter changes, issuing regulations and providing expert guidance.   The tool least used, as it is rarely needed, is calling upon NCUSIF.

Most importantly, the FCU act specifically states the NCUSIF’s financial solvency is protected by the full faith and credit of the credit union system.   All members must deposit and maintain 1 cent of each share dollar in a credit union with the NCUSIF.  Every member is part of this collective guarantee ensuring all other member shares are indeed safe. This is a cooperative movement commitment, unique to the NCUSIF.  It is the law.

If all of NCUA’s every day tools ( the other “means”) are effectively managed, then the members should never be called upon to provide additional resources.  That is how NCUA protects the Fund.

The first four-decades of regulatory responsibility to maintain cooperative system integrity from 1934-1971 did not require the share insurance tool.

One aspect of “integrity” was certainly promoting credit union solvency as there has always been reserving and net worth requirements in the law.

But just as important, system “integrity” (as a source of credit) also included vital cooperative components to provide a distinct financial alternative for members.  These  include democratic governance, values such as education and collaboration, volunteer leadership (unpaid directors and committee members), access for all Americans regardless of financial circumstance (capital), focus on community (common bond), and contrary to the capitalist model, building common wealth versus private equity, to be used by future generations .

Over time additional characteristics have been developed including interdependence (corporates and CUSO’s) and system support augmenting the critical initial role of sponsors.

A Reward for Performance

When Congress approved the NCUSIF for credit unions in 1971, it was a reward for their performance.  As stated at that time, insurance was not due to financial problems with credit unions or the cooperative system.  Rather it recognized their growing contribution to the American economy and that they might not perceived by the public as the equal of their FSLIC/FDIC alternatives.

A Cooperative Policy Framework Is Lacking

For NCUA to faithfully fulfill its mission to protect the integrity of this cooperative financial alternative, an appropriate regulatory policy framework is necessary. Such a framework should be nonpartisan and multi-administration.  Past examples are the deregulation of shares by NCUA or the redesign of the NCUSIF.

Without a thoughtful and evolving framework, NCUA becomes a mishmash of regulatory justifications or each Chairman’s personal priorities.  What do the banking regulators do?  Or let the “free market” work its will.  Or elevating suboptimal tasks and agency operations  to define priorities.

Absent a policy framework, the unique role of cooperatives becomes increasingly confused with all the other financial activity in the marketplace.   No longer are the well-being and rights of member-owners front and center.  Bright shiny objects such as innovation and new technologies take center stage.

The ambitions of managers and boards seeking to outgrow their for-profit competitors become the industry’s defining priority.  Some credit union leaders chart success not by developing a better alternative to attract members, but rather using their decades of member reserves for buying out bank owners at a premium.

That activity would certainly seem contrary to the spirit of the Act.  And therefore worthy of public debate.

Credit union CEO’s, nearing retirement, game the system for personal enrichment  “selling their credit union” via merger.  They capitalize on the transfer of members’ accumulated wealth and loyalty for additional bonuses and extended payments beyond those merited as CEO.

In these transactions, the financial and relationship legacy, its goodwill, is turned over to boards and CEO’s with no prior connection.  And justified only with vague future promises that bigger is better.  The unique character of the charter and its local legacy and traditional focus are eliminated.

Tomorrow Part II, developing a policy framework.

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When the Music Stopped for VyStar

On May 2, 2022 the $12 billion VyStar Credit Union celebrated its 70th anniversary with a ceremony at its founding location, the Naval Air Station, Jackson, FL.

The press release included the following announcement:  VyStar is also leading a digital transformation that includes a new website and online & mobile banking platform.  But then reality set in.

The Music Stops

On May 14,2022 the confetti hit the fan. The conversion to the new online and mobile platform failed.  As of the following Friday there were more than 13,444 comments posted on the VyStar Facebook page about the outage.

The situation as described in a CU Times story on May 22:  The brief outage, as explained to members, was planned to last for two days. As May 20 rolled around, seven days later, the $12.3 billion credit union’s 822,000 members still were offline and furious.   One Facebook posting:  “How in the Hell Does a Credit Union go a week with its online systems completely DOWN in 2022???”

The CEO Returns

Brian Wolfburg, CEO had been  on vacation overseas.  Upon his return he was interviewed by a reporter Jim Piggott for the local TV station, NEWS4 JAX.  The complete  18 minute interview is here.  The on air report excerpt  was just six minutes.

Wolfburg repeatedly references the credit union’s 70 year history to indicate that the credit union will “get it right.”   Members posted their skepticism in comments after the story such as:

Mikey19 DAYS AGO: I think the CEO should resign and the person that is in charge of this mess should be fired. Who is with me on this. Let’s email the Board of Directors to let them know our thoughts. VyStarBoard@vystarcu.org

Members File Complaints with Regulator

A June 6, CU Times article detailed member complaints with the Florida Office of Financial Regulation:

Complaint Filed May 20:  “VyStar Online Banking has been unavailable to members for 7 days now with no date given as when to expect the system to be operational. VyStar Management has been vague and evasive with little to no accountability for the botched roll out of its new online banking system. They have gone ‘dark’.   The story added:

CU Times has repeatedly asked for interviews with VyStar executives and board members. The interview requests have not been granted.

Potential Legal Trouble

A June 8 article in CU Today described the  potential of a class action suit.  Also the credit union would end its fee refund of fees incurred by the outage.

VyStar said that it proactively refunded/is refunding fees that it charged members from May 14 through June 9 as a result of the online and mobile banking conversion, but as of June 10 it will not do so.

Members Leaving

In a June 9 CU Today update, the story described members intentions to leave the credit union:

Action News Jax said it contacted VyStar CU regarding how many members have closed out memberships, but said the credit union did not provide any data. 

Class Action Suit Filed

June 13, CU Today reported on a class action suit:

In an interview with FirstCoastNews.com two weeks after the solutions went down, Attorney Austin Griffin, a partner in StoryGriffin PA, a consumer justice law firm in Jacksonville Beach. Fla., told FirstCoastNews VyStar members could go after the credit union with three possible claims: negligence, breach of contract and fiduciary duty.

Griffin told the publication that since VyStar is a credit union and not a bank, there is “an expected higher standard of care.”

VyStar’s Status Today

The latest update on VyStar’s web site reads:

Online statements now available. Access your accounts and make External and Internal Transfers via your computer, tablet or mobile device at online.vystarcu.org. Please note: We will continue to have planned daily maintenance from 1 a.m. to 4 a.m. EST when system access may be unavailable.

The Credit Union Times latest summary  is as of June 14.  Over 28,000 comments have been posted by members frustrated with their experience.

Context for the Event: VyStar Invests $20 Million in Nymbus

There are more factors to this story than a botched conversion.

In  July 2021, VyStar signed a deal with the Jacksonville, Fla.-based Nymbus as the credit union’s online and mobile banking partner.

This statement by Joe Colca, Seniro Vice President of Digital Experience was part of the release:  “Our previous investment already demonstrated our confidence in Nymbus. We’re now proud to lead by example for other credit unions seeking a trusted fintech partner to implement sophisticated technology, people and processes to offer progressive products and member experiences.”

In October 6, 2021 Credit Union Times reported Nymbus had moved into VyStar’s head office location.  “A fintech with credit union funding is moving from Miami Beach to the campus that houses the headquarters of VyStar Credit Union in Jacksonville, Fla.

Nymbus said in a news release Tuesday that it made the move because of its relationship with VyStar ($11 billion in assets, 778,348 members). VyStar invested $20 million in April to help develop Nymbus’ month-old Nymbus CUSO to better extend its services to credit unions. In July, VyStar chose Nymbus as its new online and mobile banking solution partner.

In September 2019, VyStar created a $10 million fund to invest exclusively in fintech companies. VyStar has said it has supported Nymbus because it provides a way for it and other credit unions to keep up with members’ rising expectations for sophisticated online services. Nymbus’ website said it saves banks and credit unions “decades” in developing such services.”

Two senior managers of VyStar were also  members of Nymbus’s Board. Joe Colca, VyStar’s SVP on the board was quoted:

“Nymbus has proven to be an effective, valuable partner in our efforts to improve the member experience at VyStar and strengthen the credit union industry as a whole,” Colca said.

 VyStar’s FOM Expansion and Bank Purchases

Vystar’s first bank purchase was announced on January 15, 2019 with the  purchase of First Citizens Bank: VyStar Credit Union announced it plans to acquire $280-million Citizens State Bank, a Florida state-chartered bank headquartered in Perry. CSB has four locations: two branches in Gainesville, and branches in Perry and Steinhatchee, Fla.

The article continued that this purchase was possible because of an FOM expansion:

In November 2018  VyStar received approval from the Florida Office of Financial Regulation to significantly expand its field of membership by 27 counties—more than doubling the original 22 counties—to include all 49 counties of Central to North Florida. This expansion included Taylor County, where CSB’s Perry and Steinhatchee offices are located. VyStar currently serves the Gainesville community with two branch locations with plans to open additional offices in Alachua and Ocala by mid-year, the CU said.

Subsequently,  on March 31, 2021 VyStar’s purchase of the $1.6 billion Heritage Southeast Banking group  for $189 million was announced.  The closing has been deferred three times.   This would be the largest purchase of a bank by a credit union.

Largest Subdebt Placement by a Credit Union

To support these bank purchases and rapid growth, VyStar issued $200 million of subordinated debt in the first quarter of 2022.  This is the largest subdebt capital placed in credit unions to date. Arranged by Olden Capital, the issue was sold to 41 investors including credit unions, banks, insurance companies and asset managers.

Without this external capital infusion, Vystar’s net worth would have been 7.9% of March 31, 2022 assets.  With the debt and using a four quarter asset average as the denominator, VyStar reported a net worth ratio of 10.15%.

“Values-centric” brand campaign: “Do Good. Bank Better.”

From an October 2021’s CU Today story  New Branding Campaign:

VyStar Credit Union has launched a new “values-centric” brand campaign, “Do Good. Bank Better.”

VyStar said the multimedia campaign has been inspired by the people, businesses and organizations that it serves, and that it elevates VyStar’s “powerful promise to support its members and communities by offering better banking options and giving back to strengthen the places it calls home.”

“We proudly live by the words, Do Good. Bank Better., and this is just the beginning of our efforts to continue sharing our nearly 70-year story,” said VyStar President/CEO Brian Wolfburg in a statement. “As we evolve as an organization, we remain true to our roots by upholding our standard of leading by example and showing goodwill in everything we do.”

The Member’s Chance for a  Choice

VyStar has been on a very ambitious multiyear growth spurt:  converting charters and expanding the FOM, purchasing whole banks, investing in multiple fintech companies, raising external capital and launching a new public relations and branding campaign.

Members’ reaction to the online conversion failure shows how much confidence has been lost in these many expansion efforts.  The situation calls into question multiple initiatives especially the credit union’s investment and role in Nymbus plus its thrice-deferred bank purchase.

This episode and its background are now occurring in a rapidly changing economic and financial environment.  Investments and other assets that appear sound when the cost of funds is near zero now have a very different risk profile.

Once again the regulators have been on vacation.

The credit union’s reputation is being stained. Its operations, business initiatives and internal capabilities appear strained on several levels.  The net worth ratio is created, not earned.

The best solution may be to follow the advice of the member who posted:  Let’s email the Board of Directors to let them know our thoughts. VyStarBoard@vystarcu.org 

Members are the owners.  They should do more than vent frustration by exercising their power to choose their representatives for the board.  They should take back their “home” if they truly want to see the credit union “do right” for its members and communities.

 

 

 

 

 

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A Merger for a New Future or a Rescue Operation?

The largest merger announced so far in 2022 is the combination of the $2.8 billion Cap Com FCU with the $5.6 billion State Employees FCU, both in Albany, New York.

Cap Com’s web site has a link promoting the merger.  It includes a video from the President and Board Chair, FAQ’s,  merger updates and a description of the voting process.

In these explanations and in the required Member Notice dated April 8, 2022, the justifications (excerpts below) are general and rhetorical.

The combination will result in a different brand and new name which will  operate state wide.  The site even highlights a critical benefit  members will be able to keep: their free checks and coin counting machines!

There is  a  link to nine merger myths which are then dismissed with a contrary assertion.  For example:

Myth #6: Bigger is not better.
Often, that’s true but having more resources will allow us to do more for members, employees, and the community. This includes enhancing technologies that make banking affordable and easy.

In all the communications, both required and marketing the decision, there is a complete absence of specific benefits except those achieved by adding together existing branch, ATM, video tellers and other operational access already in place.  No savings or loan rate benefits are presented, nor any mention of new products or services.

The March 31, 2022 Financial Reports

 

While State Employees is almost twice as large as Cap Com, the most recent call report suggest it is confronting headwinds.  Total first quarter revenue declined and net income fell 50% to $6.8 million from the 2021 first quarter. Cap Com’s first quarter net was $7.1 million.

State Employee’s loans are just 51% of assets.  The investment portfolio shows a $105 million decline in market value.  The net worth ratio has barely increased over the past 12 months,  going from 6.8% to 7.06% at March 31 of this year.

State Employees would be subject to NCUA’s RBC net worth requirement.  Whereas Cap Com’s 9.86% net worth would allow them to elect the simpler CCULR capital compliance option.

35 Years as CEO

State Employees President Michael Castellana has been CEO since April 1988, or 34 years and two months.  From the Member Notice: As part of  the merger agreement Chris McKenna, Cap Com CEO/ President would become President and Castellana CEO of the new credit union.

The board chair of Cap Com will become the  chair of the combined entity.  This and the other circumstances give  the impression that this merger  is  a CEO succession plan for the larger State Employees.

This “solution” will cost Cap Com members their independent, locally focused, sound organization.

Misleading and incomplete statements about the event are a suspect foundation for a new credit union launch.   It erodes trust in leadership.  It undermines promises about the future.

If that is the intent, it should be disclosed to Cap Com members.  It puts a very different framing for motivation and outcome.  For in this instance, the asymmetries in size, performance results, and financial situation  suggest the smaller credit union is rescuing the larger.

Members sense that something does not compute in this decision by Cap Com’s board and CEO to end their independent charter.  They, and even a SECU member, have made their views known on NCUA’s website.

Members’ Comments on the Merger Proposal

  1. I have grave reservations about this merger. There was not enough due diligence to provide a transparent account of why two thriving institutions must merge, and members have not been given enough complete information to make an informed vote.

I think that this is a disservice for members and the community and I would urge you to reject this merger as not enough was guaranteed to members, and the board of directors (which includes the proposed entity’s CEO) is not making decisions that favor employees or members of either credit union.

Thank you for your time.   (Jennifer Smith)

  1. Good afternoon,
    I have grave reservations about this merger. There was not enough due diligence to provide a transparent account of why two thriving institutions must merge, and members have not been given enough complete information to make an informed vote.
    I think that this is a disservice for members and the community and I would urge you to reject this merger as not enough was guaranteed to members, and the board of directors (which includes the proposed entity’s CEO) is not making decisions that favor employees or members of either credit union. (Justin Williams; similar comment from Paul Lenz))
  2. I am a Capcom account holder and I have reservations about this merger. This is being pushed down our throats and we are not being given full information to make an informed decision. Both credit unions are doing well and the merger is not needed. They have given us vague promises about “efficiencies”, while downplaying that there will be negatives.

There must be, because mergers result in lowered competition, leading to reduced benefits, increased costs, decreased customer service, layoffs, etc. If they want to say this will not happen, then I ask, then how do these “efficiencies” happen?
Please do not approve this “merger.” ( S Price)

  1. I am leaning heavily against this merger. I maintain 14 separate accounts at CapCom and just feel the information that has been released is spotty at best, and reads as if it came from a marketing company. The special member meeting is scheduled for twenty minutes before online voting ends (24 hours before mail-in ballots must be received).From the notice that was sent to CapCom members: “Both credit unions are flourishing, so this is a ‘merger of opportunity’ with the ongoing needs of the members at its core.” What are these needs? Where have they been expressed?What about:

Higher nickel and dime fees (a SEFCU speciality – Google “Story vs SEFCU”)?
What happens if the merger is voted down?
Is CapCom over-extended on its loans (a popular theory floating around)?

Sorry. There are way too many issues here and very little substance offered for anyone to make an educated decision.  (David H)

  1. As a member of Sefcu for ove 15 years, I am appalled that this so called merger of equals is going to be allowed. It was announced last July as a merger of equals. If that is the case then not only should the capcom membership get to vote but so should the Sefcu members. You can’t have a merger of equals if it’s only going to get voted on by one side . I also would like you to look into the multiple conflicts of interest on both sets of leadership. I truly don’t feel that the members of both institutions are truly going to benefit in any possible way from this proposed merger. (Russel Kuhls)

MyAssessment

Despite the asserted benefits, this looks like a merger of necessity  to extricate State Employees from a downturn.

The members of Cap Com correctly see this as not in their best interests.

With a new  name and brand, a state wide operational commitment, a below average combined capital ratio, and required conversions from different data processing and other third-party providers, this merger is  a recovery operation not a launch to the future.  It will be costly.

State Employees could recruit Cap Com’s CEO to  be Castellana’s heir.  However bringing Cap Com’s resources to the project appears to be throwing good money after bad.

Cap Com members are being asked to rescue State Employees members in a time of heightened economic uncertainty.

Where Has NCUA Been?

The members of Cap Com are also covering for a lack of effective supervision by NCUA.   It was NCUA’s Chair who in January asserted  the need for succession planning by proposing a new rule.  Merging Cap Com to provide the  leadership  to turn around State Employee’s  trends is the exact opposite of the rule’s intent.

This rescue requires that members vote to approve and then exercise patience, of uncertain duration, to endure numerous technical conversions  for operational integration.

Whatever the outcome, credit union members are being tasked again to pay for the shortfalls of the regulator in its examinations and assessments of the management and board performance of State Employees, that is the M in CAMEL.

References:

From the Member Notice on NCUA’s Website. 

No specific member benefits are provided.

Reasons for merger: The Board of Directors of CAP COM unanimously concluded that the proposed merger with SEFCU is desirable and in the best interests of the members. Although CAP COM thrives today, there is no guarantee it will be immune to the ever-increasing competitive pressures that can blunt success in the future. Throughout the United States, credit unions face immense challenges from digital only banking services, industry disruptors, and powerful mega banks. This merger will increase operating efficiencies and offer the potential to expand products and services for credit union members sustainably over time.

Joining forces with SEFCU is the ultimate collaboration. This merger will benefit members, employees, and the communities across the combined organization’s new, expanded footprint. The merger would capitalize on the cooperative spirit of the two credit unions, their distinct strengths, talent pool, and significant financial resources. It is from a position of financial strength that CAP COM seeks to merge with SEFCU. Both credit unions are flourishing, so this is a “merger of opportunity” with the ongoing needs of members at its core.

Changes to services and member benefits: Banding together, CAP COM and SEFCU can expand affordable, easy-to-use, life-enhancing services. A unified credit union would possess the scale necessary to deliver greater value to members – beyond what CAP COM and SEFCU could deliver individually.

The fiscal strength, and safety and soundness, of the combined organization paves the way. The expanded and diversified balance sheet and membership composition will reduce financial and membership concentration risk and increase opportunity. The combined capital of the two credit unions, once merged, is estimated to be approximately $702 million, cushioning against unforeseen economic downturns or other financial challenges.

The merged organization would have the largest branch presence of any financial institution in the Capital Region of New York State. In terms of number of members, it would rank among the largest credit unions in New York and the top 30 in the United States.

Through this merger, CAP COM members will realize gains in excellent rates, favorable pricing, and innovations that enhance their banking experience and financial wellness, thanks to the operating efficiencies of a larger organization that reduces expenses and generates revenue. The personalized service for which CAP COM is known will benefit from a larger membership across New York.

Making banking more convenient, affordable, and easy is a primary goal of the combined organization. The merger would enable members to gain access to more branches along commercial corridors and in diverse neighborhoods across the Capital Region and upstate New York (including areas where members prefer to bank today). More surcharge-free ATMs throughout the United States would also be available, along with more robust call center services and the convenience of 24/7 digital banking. Below you will find the retail expansion opportunities you will benefit from through this merger.

  • Capital Region, Central NY, Western NY, Southern Tier
  • 61 full-service branches (CAP COM currently 12) and two mobile branches
  • 27 video tellers (CAP COM currently 0)
  • 130 on-site ATMs (CAP COM currently 13)
  • Nationwide 85,000 surcharge-free ATMs (Allpoint®, CO-OP) More than 5,600 shared branches

Along with enriching the service offerings and benefits for members, this merger will create countless opportunities for employees to hone their skills, apply their talents, and grow in their careers with the combined organization, which will ultimately benefit members. All staff of both the merging and continuing credit unions will be offered continued employment following the completion of the merger.

Members of CAP COM will be well represented in governance of the combined organization. The Chair of the Board of Directors of legacy CAP COM will assume the role of Board Chair in the new credit union. In addition, Board members of the former CAP COM will occupy seven of 15 total seats on the newly expanded Board, along with committee assignments. As stewards of the unified credit union’s mission, fiscal soundness, and strategic direction, the Board of Directors will possess decades of institutional knowledge and continue to be advocates for members.

Finally, community outreach with generous financial support are hallmarks of both credit unions. Larger philanthropic efforts, and a greater number of employee-volunteers statewide, will support a more sustainable and equitable future across communities where members live and work.

Merger-related financial arrangements:

Two CAP COM executives, Chris McKenna, President & Chief Executive Officer, and David Jurczynski, Executive Vice President & Chief Financial Officer, are covered by a collateral-assigned split dollar life insurance plans (the Plans) that were established in 2019, prior to any discussion of merger with SEFCU. The Plans include a standard “change in control” provision requiring that, given certain circumstances including a merger as proposed to the membership herein, any unvested benefits that may be subject to a vesting schedule under the Plans, become 100% vested on the merger effective date.

Footnote:

More information on CapCom’s business strategy here:

(Opening paragraphs) For the past three years, CAP COM Federal Credit Union ($2.6B, Albany, NY) has been honing its abilities to reduce risk and maximize reward — taking care to not throw out the BABI with the bathwater.

“BABI” is shorthand for the business analytics (BA) and business intelligence (BI) division the cooperative created in January 2018. The BABI team generates and interprets data as well as makes intelligible reports available to stakeholders across the enterprise.

 

 

 

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Credit Unions and Democratic Practice

Credit unions are strong proponents of democratic values.   Until they have to practice them.

I was reminded of this reluctance in a press story of a recent merger approval.  When asked about the vote tally, the credit union did not answer how many of its 9,870 members supported their charter cancellation:

Members of the $137 million Embark Federal Credit Union in Great Falls, Mont., voted to approve a merger with the $1.7 billion Horizon Credit Union, the Spokane Valley, Wash.-based financial cooperative said in a prepared statement Tuesday.

Horizon did not disclose the final vote tally. The credit union did not respond by deadline on Tuesday afternoon to CU Times‘ request for the member vote count.

Reporting the vote outcome, but not the actual numbers, suggests the credit union does not want the totals known.  The credit union provides the veneer of democracy but not the facts of how many member-owners actually participated in this required step to give up their charter.

To paraphrase a term from writer Jared Brock, credit unions have become “cooperative oligarchies.” The word comes from the Greek oligarkhía, meaning  “rule by the few.”

Merriam-Webster ‘s definition:  “a government in which a small group exercises control especially for corrupt and selfish purposes.”

Democracy has rarely been tried by capitalists.  Can credit unions really go against the incessant drive for corporate dominance and consolidation of power sought by firms in “free” market economies?

Many CEO’s and credit union boards don’t want democratic governance. They want silent customers who will passively accept the  leaders who achieved their roles years, or sometimes decades, earlier.

What they ignore is that members are the political constituency to whom  fidelity is owed. Boards and CEO’s are nothing without members.  Members deposit the funds, borrow for loans, pay the fees and generate transactions that keep the credit union revenue flowing.

Member-owners are the reason credit unions exist.
Members keep the lights on.
Members create 100% of the wealth for their cooperative.

One would think it required practice to tell members the vote tally in this management initiated effort to give up their independent credit union charter.  Especially as the CEO was awarded a $100,000 bonus and continued employment at an increased salary with the continuing credit union.

Horizon Credit Union assumes Embarks FCU’s member capital of $14 million, (approximately $1,500 per member).   The members get rhetorical promises about the future.

Is this the democratic model that will sustain members’ belief in credit unions?

 

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Learning from Past Mergers to Design a Stronger Coop Future

Since the NCUA updated its rule for mergers in 2017, almost 1,000 voluntary mergers have been completed.  In the first quarter of 2022, 41 mergers involving 366,000 members and $5.5 billion in assets were announced.

These were overwhelming strong, long-serving successful credit unions whose boards and CEO’s decided to turn their loyal members’ futures over to another firm.

The 2017 rule was intended to correct self-dealing transactions that were prompted by payouts to senior managers and staff to incent sound credit unions to give up their charters.

The rule required disclosure of all compensation related benefits that would not have occurred if the merger had not taken place.   The result has been some, but not all disclosures of promised payments.

The rule has not prevented enrichment, but ironically validated them.  The amounts and creativity of merged CEO payouts are growing.  Financial Center CU’s CEO and Chair transferred $10 million of the credit union’s capital to their private firm incorporated just prior to merger.-all with NCUA pre-approval.  In the merger  of Xceed CU the CEO negotiated a $1.0 million dollar merger bonus while promising members to look after their interest as President of Kinecta FCU for three years-only to leave within six months.

The CEO of Global negotiated a “change of control” clause in his contract that will pay him $875,000 upon merger with Alaska USA.  Change of control is used in stock corporations for managers who might lose their positions in a sale of the firm.  In this case the CEO negotiates the employment clause, seeks out a merger, retains employment post merger as  President, Pacific and International Markets, and pockets the money for the deal whose terms he set up.

The Banking Industry Is Looking at Merger Practices

In a May 9, 2022 speech at Brookings, the Comptroller of the Currency announced a review of bank merger approvals:

From my perspective, the frameworks for analyzing bank mergers need updating. Without enhancements, there is an increased risk of approving mergers that diminish competition, hurt communities, or present systemic risks.

Bank mergers should serve communities, support financial stability and industry resilience, enhance competition, and enable diversity and dynamism of the banking industry. Revisions to the bank merger framework would help to realize this goal.

NCUA’s rule 2017 merger rule was off target.   It did disclose self-enrichment, incentives  which were common place.  But it did not prohibit them..  The rule entirely missed the  Agency’s primary job which to protect members’ interests.

The evidence before and since the rule indicates that managers and boards act without consulting members, negotiate terms privately, and then present the events as final only needing the members’ perfunctory ratification.

Formal member approval is a foregone conclusion.  All of the resources, information and control was in the hands of those who set up the deal.  Members are unable to challenge let alone question the actions.

As members are shut out of the process, the concept of member owned financial institutions becomes a fiction.  Boards and management control the fate of a charter, its resources and relationships.  Members’ interests, loyalty and accumulated wealth are just pawns in management’s efforts to enhance their well-being.

As demonstrated yesterday, the majority of mergers are sound, long-serving and certainly capable of operating on their own.

How does one bring balance, objectivity and most importantly, member interests, to the fore in this increasingly wild west of uninhibited sellouts of cooperatives.

One writer, Denise Wymore,  has urged a greater commitment to purpose by credit union leaders.

Decisions, not conditions, determine your credit union’s future.

Do we look for the why behind a tough situation or do we just complain about it? Increased regulation, cost of technology, economies of scale, expanded products and services, lack of succession planning. Struggling to achieve a goal is normal and natural. Is it possible to work together to address the challenges facing “at risk” credit unions?

You have to find meaning, a purpose, something bigger than yourself. Reflect and think about your credit union’s purpose, passion, meaning…

The Comptroller outlined enhanced regulatory reviews such as:

 “Community feedback on the impact of a proposed merger also is important. . . .For example, for mergers involving larger banks, , the OCC is considering adopting a presumption in favor of holding public meetings.”  and,

“The OCC takes into account an acquiring bank’s CRA rating and performance. Banks with unsatisfactory CRA ratings are highly unlikely to receive merger approval.”  and,

Financial Stability in “too-big-to-manage is a risk with mergers, especially for banks engaged in serial acquisitions.”

Whether NCUA can reassess its role in mergers is questionable.   Unless political pressure from the Congress is exerted, NCUA seems oblivious to the reputational and safety and soundness implications of the wheeling and dealing now occurring, and the harm done to the communities who are losing their local institutions.

Putting Market Forces Back In transactions

I believe two changes in merger policy are required.  The first is make members’ interest the paramount criteria in any proposed charter cancellation via merger.  Secondly members should have the benefit of market forces to inform their decision.

Market choice would entail that all credit unions who decide to explore mergers would announce that intent publicly, invite all parties to express interest (both credit unions and non-credit unions) and then select the option the board believes meets the test of members’ best interest.  The full process would then be presented to the members for their approval or turn down.

The options for future employment, products and services, return of member capital would all be part of the public record and members would have the information needed to make an informed choice.   If a firm that is not selected wants to make a better offer, it would be able to do so and ask the members to turn down the board’s recommendation.

Putting Members Back in Charge

This change would place members in charge of the future of their credit union; not management and its personal preferences for future employment.

Mergers when sought should be a means to the end of enhancing member options and value. Today mergers alone have become the goal.  They are about self-dealing, power and control by a few.   It is time that members are given the choice about who they want in charge of their shares and loans.

 

 

 

 

 

 

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The First Quarter Score: 41 to 0:   Who Is Winning This Game?

This score is not the opening of an NBA playoff game.  It is the number of credit union charters given up versus new charters issued in the first three months of 2022.

What does the score mean?  Why is it so lopsided?  More importantly, are any members winning in these charter closures?

365,700 Members Lose their Credit Union

The 41 credit unions’ CEO’s and boards are transferring their 365,700 members to another credit union’s control.  These members did not choose this fate.  In fact they showed continued loyalty: total members increased by 2% and share grew by almost 11% for the year ended 2021.

These members have $3.3 billion in loans and have placed over $4.7 billion in savings  to benefit their fellow members. Collectively they have created over $540 million in common wealth, none of which will be distributed to them.  Their average ownership is $1,500 each.

There is no information that any of the members were consulted before the boards and CEO’s made these decisions.

Check the Box Explanations

The Credit Union Times article categorized  the 41 by the explanation NCUA provided when approving the  mergers as follows:

“34 credit unions that received the NCUA’s nod to consolidate for expanded services, two credit unions got the OK to merge because of poor financial condition, two for inability to obtain officials, two for lack of sponsor support, and one for loss or decline of field of membership.”

The continued growth in shares, membership and most importantly, the 47% increase in loan originations in 2021 suggest this group was more than competitive based on the latest performance data.  They ended the year with 9.9% net worth, delinquency of .55% and a collective ROA of 1.25%.

These 41 credit unions are sound performers which the members are loyally supporting.

The Largest Three

The three largest charter cancellations are the $2.5 billion Capital Communications FCU, the $612 million Global CU and $524 million People’s Trust FCU.  What they have in common is they are turning over the keys to their operations to credit unions already operating in their communities.

This means these six-decades old institutions are combining with other local credit union competitors.  The effect will be to reduce member choice, end opportunities for local leadership, close career options for employees, and extinguish the generations of earned loyalty and goodwill with members and local constituencies.

These credit union’s  hundreds of millions of collective capital will be under the control of directors the members did not elect and who will have broader corporate goals then just serving the newly acquired members and their transferred wealth.

These combinations eliminate local options and the diversity of models and service approaches that make credit unions successful.  Consolidation and concentration which reduces local competition may make life easier for managers.  It does not enhance member choice.

The most important math in credit union mergers is the 1 + 1 = 1.  There is no expansion of credit union coverage; the system did not grow market share; the members gained no immediate benefits.  But they will pay all the costs of merger including the cancelations of vendor contracts, employee benefits, and of course the help of professions who facilitate the deal making.

A Game without Rules or Umpires

Mergers of sound, well run credit unions are not benefitting members.  Rather they have become a sop for managers to game the system for self-benefit and boards who have lost any sense of fiduciary responsibility.

Writer-commentator Scott Galloway has characterized the motivations for mergers as:

Competition depends on rules, and rules depend on umpires. We should fight to protect competition — not winners. Because winners subvert the process. In the name of competition, they demand that their anticompetitive acts go unpunished. In the name of freedom, they insist on their right to shout down the dissenter’s voice.

His thesis is simple in capitalist economies:   No field sees winners try to retract the ladder behind them more aggressively than business or I might add, the CEO’s of sound merging credit unions.

The primary advantage of the credit union model is the member relationship grounded in democratic ownership.  Their unique advantage is their local knowledge and relationships that provide members a sense of agency over their lives and communities.

That goodwill, built up year by year over generations of members. is sacrificed in mergers.

NCUA requires new charters to survey potential members to demonstrate support, years of financial projections, vetting of proposed board members and employees with a process that takes hundreds of pages of documents and generally years to approve.

To give up a successful coop charter which took generations to succeed, is literally approved in weeks.  The form is perfunctory, there is no effort to validate the reasons given nor the rhetorical promises made.

The credit union system is failing the members who created it by routinely approving consolidations that mimic the activities of institutions for which credit unions were supposed to be an alternative.

At a time when individuals and communities are confronted by forces, events, private and governmental institutions over which they have no say, the credit union is supposed to be an option they  can count on.   Mergers destroy this sense of influence over events in one’s life.

The score this quarter is 41 to 0. At the moment, the members are losing this game.

Tomorrow I will provide some thoughts of others on what might be done.

 

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A Member Raises an Abiding Question Both Topical and Troubling

While traveling yesterday I was copied on an email between two credit union members.  The sender asked in part: 

“ I belong to five different credit unions.  I’ve clawed my way onto the supervisory committee of one of them. . . Alas, the Board of one has recently approved a deal by which it will be swallowed up by the biggest credit union in the state. . . When the deal was announced I wrote asking for whatever merger documents they could disclose.

I heard back directly from the CEO, who cheerfully explained they would be disgorging absolutely no documents.  It appears to me that the board and management actually expect the membership to ratify this deal entirely on a “trust me” basis. . . literally every justification that has been publicly offered comes down to some version of “bigger is better.”

His request:  “I am wondering if you would refresh my memory about what specific questions a concerned member ought to be asking about a deal like this.”

Topical and Troubling

If the situation is familiar, it is because it  happens  weekly.   Not mergers, but member-owners cut out of the process entirely.  Private deals supported by rhetorical promises and void of any objective facts.

Takeovers are an everyday event in capitalism and its anything-goes world of buyouts and mergers enabled by the financiers.

Here is how one long serving capitalist CEO described the process in his Annual Report:

Acquisition proposals remains a particularly vexing problem for board members.  The legal orchestration making deals has been refined and expanded (a word aptly describing attendant costs as well). But I have yet to see a CEO who craves an acquisition bring in an informed and articulate critic to argue against it.  And yes, include me in that category.

Overall, the deck is stacked in favor of the deal that’s coveted by the CEO and his/her obliging staff.  It would be an interesting exercise for a company to hire two “expert” acquisition advisors one pro and one con, to deliver his or her proposed views on the a proposed deal to the board—with the winning advisor to receive, say, ten times a token sum paid to the loser. 

Don’t hold your breath awaiting this reform:  the current system whatever its shortcomings for shareholders, works magnificently for CEO’s and the many advisors and other professionals who feast on deals.  A venerable caution will forever be true when advice from Wall Street is contemplated:  Don’t ask the barber whether you need a haircut.   (Source 2019 Annual Report, Berkshire Hathaway Inc. pgs 12-13)

A Game without Rules: Credit Unions Become Commodities

Mergers are being undertaken by sound, well established and stable credit unions not to better serve members.   But rather to make life easier for their leaders.

Instead of cooperative communities expanding long-time member relationships, these transactions treat credit unions like a commodity.  Leaders who give up their fiduciary positions to an outside third party without  engaging the owners prior to the decision and who must approve this charter cancellation.

This is the situation the member’s email describes.  And hundreds of thousands more members who end up becoming just consumer accounts to be bought and sold.

This is worse than the acquisition games Buffett describes in his Annual Report.  Credit unions and cooperative design is supposed to protect member-owners from self-dealing leaders and board toadyism.

Mergers lack transparency, public disclosures of strategy or benefits, and certainly no post acquisition accountability.  These are private deals negotiated by CEO’s putting their interests first and then announcing their intent to members.

The member vote is merely an administrative process without substance where very few members even bother to participate. All the messaging, resources and formal requirements are under the complete control of the persons benefitting from the transaction-not the members who must approve the decision.

What can members do?  How can the supposed democratic one member one vote governance model be revitalized to ensure member interests are front and center in these self-dealing transactions?

That is what the member is asking.  I will share your thoughts, and offer a few of my own.   Where is the Kristen Christian   when  members now need her to  save their own credit unions?

Buffett’s Merger Conclusion

“I’ve concluded that acquisitions are similar to marriage:  The start, of course, with a joyful wedding–but then reality tends to diverge from the pre-nuptial expectations.  Sometimes, wonderfully, the new union delivers bliss beyond either party’s hopes.  In other cases, disillusionment is swift.  Applying those images to corporate acquisitions, I’d have to say it is unusually the buyer who encounters unpleasant surprises.  It’s easy to get dreamy-eyed during corporate courtships.”

 

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Too Small, Too Short

There is an urban myth about a bet a group of writers and hangers-on made with Ernest Hemmingway one evening during a night of drinking in Paris.

His friends wagered that he could not write a short story in six words.  They each put over $100 in francs on the table.

Hemmingway took a napkin and wrote the following:

For sale. Baby shoes. Never worn.

He won the bet.

Too Small-An Obsession with Numbers

A similar mindset exists in many organizations about the value of size.   Growing larger is the basic criteria for success.

I was reminded of this obsession with numbers, not from the siren calls for mergers among credit unions, but rather from an observation on the decline of churches in America:

A church with 1,000 people can be a dysfunctional mess, filled with shallow believers, making zero impact in their local community.

And a church of 30 people can live out the faith, change lives and be true to the Gospel.

Is my church too small? That’s the wrong question to ask.

Instead, ask whether your church is healthy?

Insert the word credit union for churches; repeat the question.