Posts tagged ‘mergers’

Hood Clarifies NCUA Position on Bank “Mergers”

In a recent column in the American Banker, (subscription required) NCUA chairman Rodney Hood clarified some important issues related to the small but increasing number of bank/credit union combinations. Typically I try not to pay too much attention to banker hyperbole since there really are more important things for credit unions to worry about than the fact that banker associations don’t like them. But given the extent to which misinformation is increasingly confusing issues surrounding credit union acquisition of bank assets, I was glad to see the Chairman address some important misconceptions.

First and foremost, credit unions can’t merge banks into them. Instead they can enter into purchase and assumption agreements in which they agree to purchase some or all of a bank’s assets. As the Chairman explains “when speaking of credit unions “acquiring” banks, these credit unions are actually purchasing bank assets and certain liabilities in market based transactions. These purchasers could include loans and deposits” but cannot include stock.

This is more than a legalistic distinction. It means for example, that when assessing whether or not to go forward with an acquisition, credit unions have to take into account the compatibility of the financial institution’s customer base with its existing field of membership. In fact, describing these transactions as mergers is like describing an estate sale as a real estate transaction. When a bank, or any other corporation for that matter, completes a merger, it is generally stepping in the shoes of the previous company and taking on all its obligations. In contrast, when conducting a purchase and assumption (P&A), the purchaser is only taking legal responsibility for the assets it purchases.

Then there is the policy issue. Specifically, is there something inappropriate about credit unions purchasing bank assets? Unlike an increasing number of my fellow Americans, I actually believe that the free market works pretty well. Why shouldn’t community banks have the choice of maximizing their assets by entertaining acquisitions by credit unions as well as banks? If I were running a community bank I would welcome any potential purchaser who is going to treat my customers well and give me the best value for my business.

One more thing, the banking associations would be doing a lot more for their average community bank member if they went to congress and advocated for changes in the law which gave them the ability to compete once again against larger banks. Of course this won’t happen. Besides, it is so much easier to obsess about a relative handful of credit union P&As than it is to acknowledge that larger banks are gobbling up smaller banks out of existence.

NCUA to meet with Task Force

The Credit Union Times is reporting this morning that NCUA has agreed to meet with the New York City Taxi Medallion Task Force which released its recommendations for the industry this past Friday. This can only be good news as any resolution of this issue is going to involve NCUA.

 

 

 

 

 

 

 

 

February 5, 2020 at 9:34 am Leave a comment

Is Bigger Always Better For The CU Industry?

I found myself getting more and more annoyed by a well-researched and well written paper on CU merger trends recently highlighted in the CU Times.  The authors argue convincingly that, given pressures facing the industry, mergers can have positive consequences for members of the merged credit union in terms of services and financial stability.  In fact, to these authors the benefits of consolidation are so obvious that they are ultimately dismissive of those of us who see in this consolidation trend the seeds of the industry’s demise.

 The authors don’t dispute estimates that within 20 years there might be a total of 1,500 credit unions.  Instead they argue, “what’s the big deal?  If these numbers do indeed come to fruition and population growth remains relatively steady, it would mean that one in three people in the U.S. would belong to a credit union by the end of this period (Pilcher, 2012).  So why all the gloom and doom?  So what if less than ten percent of credit unions will have less than one hundred million in assets twenty years from now? The industry is experiencing the biggest boom in its history in terms of assets and members, but to hear some individuals within the industry talk about it, you would think that we were two decades from suffering the same fate as the savings and loan industry.”

First, I agree with some of what the authors are saying.  Consolidation is inevitable.  Mature industries consolidate and credit unions aren’t immune from this reality.  Plus, businesses either grow or die; there is no in between.  When I see credit unions hoarding their capital without a realistic plan for growth, I know it’s only a matter of time before the urge to merge kicks in. 

Where I part company with these researchers is their belief that credit unions can survive so long as they continue to provide great service and products.  They argue that “All sides can agree that credit unions were initially organized to positively affect the lives and financial situations of those residing within each organization’s respective field of membership, and this is the lens through which the impact of mergers on the movement should be analyzed.”

This simply isn’t true. There are many banks that do a great job of positively affecting their members’ lives.  Credit unions were sanctioned and given a not-for profit mission because everyone needs access to financial resources, particularly those of modest means, and that a cooperative structure allowing people with similar needs to pool their resources together is a sensible way of achieving that goal.

We won’t keep our tax exempt status because we are cooperatives; we will keep our tax exempt status because  we are cooperatives that do things that banks can’t or won’t do.  To be clear, larger credit unions have ample resources to meet this challenge but only if they don’t content themselves with providing the same services as banks or better.  As they grow they have to somehow keep their committed to an ethic of realizing that the little guy is still out there and he needs a helping hand.      

With that, I am putting the blog on its annual hiatus.  See you after Labor Day. 

August 26, 2016 at 8:12 am Leave a comment

Eight Trends that will impact CUS in 2016

I like to use my final blog of the year to look ahead to the trends that will most impact the industry next year.  Here is my list of educated guesses.

Accounting for the next disaster.  The Federal Accounting Standards Board is poised to finalize accounting standards that will directly impact how credit unions and banks account for potential loses.  The proposal could have a bigger impact on credit unions than the Risk Based Capital rules, so get your accountant on speed dial.

Overdraft Overhaul. Are you ready to have your members opt in to all overdraft services?  How about limits on the size and number of overdraft fees?  What about new disclosures?  All of these are possible when the CFPB formally looks to limit the use of overdraft services this year.

China Syndrome. World events have had more and more of an impact on the economic environment in which credit unions operate.  My nominee for this year’s Greece is China.  If the slowdown in the Chinese economy ends up being  more sustained and severe than pundits currently suspect we could be looking at a recession in the U.S. and political instability in an increasingly nationalistic China for years to come.  In a worst case scenario think Putin on steroids.

Political Fantasy. Donald Trump offers a blanket insult to everyone in America and his poll numbers skyrocket because of his level-headed even handedness.  Not to be outdone, Senator Cruz insults the entire world.  Jeb Bush performs surprisingly well in New Hampshire and gets enough momentum to stick around.  Speculation rises that Republican Party elders hope that no one gets the delegates they need to secure the party’s nomination.  In a brokered convention, Paul Ryan emerges as the consensus candidate and narrowly defeats Hilary after Trump and Ben Carson both run as independents.  My point is, Silly Season is fast approaching.  Don’t expect to see anything useful accomplished in Congress next year.

Will the industry hang together or hang separately? With dual membership requirements being phased out, I certainly hope that whatever new structure emerges continues to emphasize the need for a coherent and unified voice on credit union issues.  I would hate to see a circular fire squad emerge that would benefit no one but banking lobbyists.

The year of Guidance.  With the overhaul of MBL regulations and further regulatory tutorials on interest rate risk on the horizon, we will start finding out just how much more flexibility credit unions have when complying with general mandates as opposed to black and white regulations.

FOM Reform.  NCUA’s proposed FOM reforms are out for comment and, although they are a step in the right direction, my guess is that the industry will find that not enough can be done by amending regulations.  Congress needs to act, but don’t hold your breath. In the meantime, state policy makers are where credit unions will have to turn if they want greater FOM flexibility.

Fewer but Larger Credit Unions.  Are credit unions an endangered species?  No, but expect their number to decline and the survivors to get even bigger.  In 2014, the majority of credit unions lost members.  In addition, at the end of October, CUNA Mutual reported that there were 6,264 CUs in operation, down 36 credit unions from one month earlier.  Year-over-year, the number of credit unions declined by 316, more than the 254 lost in the 12 months ending in October 2014.  There is no good reason to think that this trend won’t continue or even accelerate.  (https://www.cunamutual.com/~/media/cunamutual/about-us/credit-union-trends/public/dec_2015_cu_trends_report_media_file.pdf)

On a happier note, thanks for reading, Happy Holidays and I will be back blogging next year. Now it’s off to Grandma’s house I go.

December 23, 2015 at 10:40 am 1 comment

Too Small To Succeed?

imagesCAI2JFLKOn Friday, I eavesdropped on a conversation hardly ever mentioned in mixed company and only referenced in murmurs among close friends:  is bigger better?  Specifically, should the credit union industry be encouraging smaller credit unions to merge and, if so, under what conditions? That was the subject of a frank Webinar hosted by NCUA’s Office of Small Credit Union Initiatives.  Bill Myers deserves credit for broaching the subject, which needs to be more systematically considered, not only by individual credit unions but by the industry as a whole.  The presentation is going to be available in about two weeks and I would urge those of you who did not listen to do so then.

Over the last decade, more than 2,100 small credit unions have been gobbled up and this trend is likely to continue.  Do you feel like your credit union is being pressured to merge by NCUA?  According to Mr. Myers, if it is in decline and particularly if it is in PCA “it actually is a push.”  He noted that “small is not a sustainable state.”

To many in the industry, the demise of the small credit union is a lamentable trend since the small credit union, it is argued, embodies more of the credit union ideals than its larger counterpart.  The smaller a credit union, the more likely they are to literally “know their members” and consequently have an approach to the business which best reflects the needs of the people who started the credit union in the first place.  Conversely, there are those who argue that economy of scale allows larger credit unions to provide more reasonably priced services to a larger group of people and, to the extent that the credit union grows, it is reflecting member sentiment in favor of its services.  I am firmly in the second camp of thinking, but no matter what side of the debate you’re on, I think the way in which the discussion is being framed largely misses the point.

First, what is a small credit union? From a regulatory standpoint, it is currently a credit union with $10 million or less in assets but that number will soon be changing, most likely up to at least $30 million, once NCUA finalizes proposed regulations.  But assuming we can come to a consensus about what small is, should we be giving it special protections or enhanced scrutiny?  If a small credit union has a demonstrable plan for growing to meet the financial needs of a group of people with a desire for their services, then obviously we as an industry should be willing to push back against heavy handed regulations or aggressive examiners.

But to the extent that a credit union is doing little more than sitting on capital while its membership base fades away, then NCUA is right to encourage mergers.  The statistics don’t lie:  the vast majority of smaller credit unions that merge do so because it makes sense.

December 17, 2012 at 7:08 am 3 comments


Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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