A Lot More Than Worms To Be Had In Cans Being Opened

Just when you think there are no credit union cans of worms left to open, someone pulls back the lid on a big bucket of nightcrawlers.

The move by the $1.6-billion, Minnesota-based Wings Financial FCU to bypass the board and go straight to the members of the $177-million, California-based Continental FCU with an invitation to merge is either a "hostile takeover" or a "natural progression to benefit members" or a "nail in the cooperative coffin" or a "way to deliver efficiencies and better compete" or so many more things, depending on to whom you talk.

I talked to several-dozen people last week and while their views were as wide as what's outlined above, they almost universally began by asking, "What do you think?" People weren't just asking me. The credit union community has been asking each other the same question and for the same reason: it's one thing to hear some futurist at a conference talk about change. It's quite another to feel two steps behind change and worry over when you will catch up, if ever.

There's a vacuum of any leadership within credit unions on two fronts-the competitive issues battering credit unions, and the very core issue of who is looking out for the best interests of members. There was little to no public discussion of any of this critical stuff during CUNA's recent GAC, for instance. Forget about hiking Capital Hill; it's time to hike the mountain in the CU backyard.

In this issue the Credit Union Journal seeks to deliver to readers what other publications do not: the news in context. Yes, the Wings Financial story is immediate and compelling, but what does it mean? After all, it comes at the same time Think FCU in Minnesota has opted to become a bank (one wonders if those members ever Think about what will happen to their equity), a week after Beehive Credit Union in Utah said it, too, is considering the bank move, and six months after Nationwide Bank acquired Nationwide FCU. Readers will find views on what this all means in the first-part of a series in the Journal that begins on pages 20-21.

What the Wings Financial bid has done is thrust NCUA back into a critical role for a government agency that has two Republican board members who, ostensibly, support free market policies. But that can often be misinterpreted to mean "hands-off." No free market can thrive if any of the participating parties are disadvantaged or victimized. And therein lies the challenge to an agency that must often wonder what ever happened to the good old days when the big questions were whether to go with the Holiday Inn or the Howard Johnson's for examiners on the road.

In the conversations I had last week, here are some of the points made and debated following the move by Wings Financial:

* Should every credit union under $250 million, maybe even $500 million, be running scared? What's to keep the billion-dollar CUs from going straight to the members of credit unions with which they want to merge and, just to sweeten the deal, offering a payment to the member out of the capital of the targeted credit union? Wings Financial, for instance, is offering $200. The great thing about credit unions has always been that all members are created equal, regardless of balance. Is that now also a bad thing? After all, to the member with $10,000 on deposit and a mortgage and credit cards, two-hundred bucks ain't much. But to the many, many members who have the minimum shares on deposit and who are one check away from an NSF, that $200 could help cover the rent. Heck, some uninformed members would vote in favor just to get the beer money.

* What does the law say about actions such as that of Wings Financial? It's a good question, as it poses a dilemma credit unions had never before considered. One source at NCUA keenly observed that credit unions complain that members of converting credit unions aren't being fully informed, and then turn around and say members at targeted credit unions shouldn't be made aware of what a bidder is offering.

* Is your credit union prepared for the kind of side-by-side comparison that Wings Financial has made at www.continentalwings.com? In this case, Wings compares its pricing, rates and fees to those of Continental and argues that CFCU members would be as much as $1,000 richer (every year!) if they belonged to Wings.

* Is this just a clever plan by Wings Financial to pad its balance sheet and convert to a bank? Wings CEO Paul Parish says absolutely not, it is committed to the CU charter. On the flip side, another person pointed out to me that for the approximately $5 million that would be spent paying the $200 to CFCU members (which wouldn't even come out of Wings' pockets), Wings would acquire another $177-million in assets and a branch network.

* Have other banks or investment firms been reading up on the Nationwide Bank acquisition of Nationwide FCU, something that used to be unthinkable? Are you next?

* Finally, as mentioned above, is anyone looking out for the rank and file. "If we are not doing things for the benefit of the members, we are losing our focus, which is my biggest fear," observed the Texas league's Dick Ensweiler.

All of this deserves debate, discussion and leadership. In this case, just having two out of three is bad.

Frank J. Diekmann can be reached at fdiekmann<at>cujournal.com.

What Do You Care?

What are your thoughts on Wings Financial's bid to merge with Continental FCU? A healthy step? End of the credit union world as we know it? Sound off by clicking on www.cujournal.com, and then clicking on the "Letters to the Editor" icon in the left navigation bar.