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No Value To CU Membership? One Buyer Disagrees

Thanks, Nationwide! You're on our side!

On June 16, Nationwide Financial Services - one of the largest, most sophisticated, and adept financial companies in the United States-presented the credit union movement with a wonderfully amazing gift-a gift of immeasurable value and great import! Gift giving by a highly practical, efficient, hard-nosed, for-profit insurance conglomerate-staffed wall-to-wall with this country's best and brightest actuaries and financial analysts- is indeed a rare and remarkable gift worthy of great praise. Thanks, Nationwide! You're on our side!

Missed it, did ya? Well, June 16th was the day that the board of directors of Nationwide Federal Credit Union announced that they had unanimously agreed to be acquired- subject to member approval-by the newly formed Nationwide Bank, a wholly-owned subsidiary of Nationwide. Good news, you ask? This sounds like another one of those credit union-to-bank "conversion disasters!!"

Now, now, calm down, calm down! Life is never simple. The Nationwide announcement follows the old story line of one of those time honored jokes: "Well, I have some good news and some bad news..."

First, the bad news is that the credit union movement may be losing both a superb credit union and one of our most distinguished and highly respected CEOs, Paula Edwards. Nationwide Federal Credit Union is a great organization, chartered over 50 years ago, and has grown to over $585 million in assets with 44,000 members.

Capital at Nationwide Federal Credit Union is strong at 11%, while the most recent return on assets (ROA) exceeds 1.40%-despite a most difficult market! Expense control is also top-tier at 2.19%. What a terrific success story! Nationwide Federal Credit Union is a wonderful reflection of its sponsor company, Nationwide; both are world-class institutions.

And, Paula Edwards has been the guiding light behind this progress for years-an experienced, dedicated, caring leader. The potential of losing Nationwide Federal Credit Union and Paula Edwards are difficult, bitter pills to swallow.

So, what's the good news? How can you possible make a "silk purse out of this sow's ear?" What possible benefit can credit unions achieve from this great loss?

Well, the good news comes in the "terms of the deal" offered by Nationwide Bank to Nationwide Federal Credit Union for its acquisition. You see, Nationwide Bank has offered to pay Nationwide Federal Credit Union member-owners a 15% premium over and above their share value for the right to purchase the credit union!

For example, if a credit union member had $1,000 on deposit on March 31, 2006; that member will be paid $150 for the member's ownership rights in the credit union.

In aggregate, Nationwide Bank has offered to pay members $79 million for the right to purchase THEIR credit union! Thanks, Nationwide! You're on our side!

Wait, I don't get it!? What's the "big deal?" Well, there are three important points you need to consider. First, the total accumulated equity capital of Nationwide Federal Credit Union on March 31, was $65 million and Nationwide Bank-part of the highly sophisticated Nationwide financial conglomerate-is offering to pay members a premium of $79 million for the right to own the credit union. Second, through the offer, Nationwide has acknowledged and confirmed that Nationwide Federal Credit Union's members do own the equity in the credit union and that each credit union member is entitled to a prorata payment for their ownership interest.

And lastly, Nationwide-again, blessed with financial expertise and experience of the first order-has verified and validated that any credit union manager or credit union board who sells or converts a credit union without each member receiving fair market value is, at best, negligent and fiduciarily irresponsible, and at worst flat-out dishonest.

Mark June 16th down as a red-letter day on your credit union calendar. June 16, 2006 represents a new beginning. In terms of member ownership rights, member equity and financial fairness-stealing from the membership will now no longer be permissible in the credit union community.

Self-serving credit union managers, boards, and their "wink and nod" advisors are now fully on notice of their potential personal, fiduciary, and criminal liability. After all, either Nationwide doesn't know what it's doing, or those conversion purveyors of deceit have always known exactly what they were doing! The silk stocking pickpockets of "charter choice" just got a new option-"buy or sale" just got expanded to include "bye or cell."

Thanks, Nationwide! You're on our side!

Jim Blaine is CEO of State Employees Credit Union, Raleigh, N.C. Feedback can be sent to lfreeman<at>cujournal.com.

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