Credit unions are member-owned cooperatives with equality of membership, ownership, and voting rights as our fundamental democratic and philosophical hallmarks. We understand fairness; we play it straight; we look after our members' best interests! Fair is fair; share and share alike!
That's why it's so heartwarming and uplifting to see Nationwide, Nationwide Bank, and Nationwide Federal Credit Union protectively joining hands around the Nationwide FCU membership in the current merger discussions. One can almost hear the lilting lyrics of "Kumbayah" floating on the soft summer breeze out of Columbus! Ah-h-h, come together!
Well, not exactly! In fact, not at all! This darn herd of proverbial cats just refuse to stay loaded in the Nationwide wheelbarrow! The "what's in it for me" crowd has already broken loose! Some of the questions they're asking aren't pretty!
One group of Nationwiders (evidently possessed of advanced degrees in mathematics, finance and accounting!) are asking how was the prorata distribution of equity formula determined; who decided it was the fairest method; and what where the other alternatives considered?
Here's a look at a couple of their supposed concerns. First, Nationwide is paying $79 million to Nationwide Federal Credit union shareholders based on their shareholdings as of March 31, 2006. This represents a 15% premium (actually 15.26%!) over and above the actual Nationwide FCU equity of $65 million at March 31. The FAQ information from Nationwide gives the example that a member with $1,000 on deposit will receive an extra $150!
So, what's the beef? Let's look at a chart of who will get what:
Your NFCU Share Balance Your Equity Bonus Payment
$100,000.00-plus 19.74% of the $79 million!!*
Now, as we all know, many, many loyal credit union members do not have much on deposit at their credit union. Quite frequently the majority of members have less than $100 on deposit. Many strong supporters of a credit union, who are in the "borrowing phase" of life, keep only the minimum (usually $25) share deposit requirement. These folks, however, do "pay a lot of freight" at the credit union through interest on loans and fees on transaction accounts. This group rightfully thinks they deserve more than a "McDonald's Happy Meal" bonus dividend!
At the other end of the spectrum, Nationwide Federal Credit Union, like most credit unions, has a very, very small minority of members who hold share accounts with balances in excess of $100,000.
Nationwide Federal Credit Union's March 31, 2006 Call Report indicates that accounts with balances in excess of $100,000 total $102,200,000, or 19.74% of total shares of $517,700,000. This tiny minority of shareholders will receive an excess dividend payment of $15.5 million! That's a lot of Happy Meals!
Alternative suggestions? You bet! One proposal is to more evenhandedly reward all shareholders; again recognizing that the number of shares held (your share account balance!) is not the traditional way credit unions measure membership, ownership, nor voting rights! A flat, equal distribution of $1,795 to each of the 44,000 Nationwide Federal Credit Union member-owners would enable each Nationwide Federal Credit Union member to fly to Maui and order a "Happy Meal"! Or, one could pay a bonus dividend of $1,000 to each Nationwide FCU member and prorate the remaining $35 million ($79 million-$44 million) among the "fat cat shareholders" (if you must!!) Or, how about giving $1,000 to each member and then dividing $5 million among the long-serving, loyal staff? The extra $30 million "left over" could go to a scholarship fund for the children of Nationwide employees. Talk about a commitment to financial literacy!
The Nationwide Federal Credit Union Board, of course, has probably considered all these options. It might be extremely wise and fiduciarily prudent to let Nationwide Federal Credit Union folks know why the current distribution method was chosen.
Why? Because the really thin-lipped, cold-hearted critics are not only asking why the "make the rich richer" formula was chosen? They, also, snidely point out that balances in accounts over $100,000 at Nationwide Federal Credit Union jumped by $20 million-plus from Dec. 31, 2005 to March 31, 2006 (up from $81.8 million to $102.2 million). Those few members with $100,000-plus accounts will rake off an extra $3.1 million bonus dividend just by having made those deposits during the first quarter!! Cynics sense a whiff of "insider trading"! They also note that "fat cat" $100,000-plus accounts are historically always highest at Nationwide Federal Credit Union at the end of the first calendar quarter. Has Nationwide Federal Credit Union checked for "unusual activity" in account shareholdings? Why was the first quarter selected?
Qtr End Balances $100,000+ Change +/-
March 2005 $84,780,000 -
June 2005 $75,503,000 -$9,277,000
Sept 2005 $78,400,000 +$2,897,000
Dec 2005 $81,813,000 +$3,413,000
March 2006 $102,236,000 +$20,423,000*
*Bonus dividend to be paid on $20.4 million = $3,116,000!!
Much is riding on the Nationwide FCU merger. Nationwide Federal Credit Union members have substantial equity interests-both hard dollar and service quality concerns-to protect. The Nationwide Federal Credit Union Board has publicly stated: "After a very careful exploration of all of the options available, your Board unanimously recommends your support of this proposal." Nationwide Federal Credit Union's credibility is at stake. Nationwide, as a Fortune 100 company, also has much at stake in terms of employee relations, public confidence, and reputation risk. Both Nationwide and Nationwide Federal Credit Union have stated: "Throughout the entire process, Nationwide Federal Credit Union and Nationwide are committed to full transparency and to communicating fully with members."
Nationwide's integrity is at stake. The credit union movement, too, has its reputation in play with this merger. Millions of Americans served by credit unions are watching carefully. Our future is at stake!
This is literally a Nationwide and a nationwide matter of importance. Fairness is the issue, this is a fair deal, isn't it...? Kumbayah Columbus!!
Jim Blaine is CEO of State Employees Credit Union, Raleigh, N.C.