What Goes Around Comes Around, Though Not for All

It was among the first to tell its members they would be better off as customers, that the charter that had served them reliably since 1932 was obsolete, a relic of the old century, just like its original name, Tacoma Teachers CU. The new century called for a something new: a bank.

That, in so many words, was what the former member-owners of Rainier Pacific Credit Union were told beginning in 2000 by the board they had elected and the management the board had hired. It was hardly alone. At the same time around the country dozens of other CU boards and managements had heard the siren call of the lawyers and Wall Street firms preaching "charter conversion." Forget FOM. The three letters of the era were IPO, and why should all those dot.com start-ups and even de novo banks be alone in getting rich?

Credit unions, after all, had a few things those Internet whiz kids didn't - revenue, for one thing, and a big pile of reserves, for another. By 2001 Rainier Pacific was quoting from the Conversion Statements Template: we need to toss off these CU shackles and become a bank in order to grow, in order to serve you better! Those member-owners who voted bought it (it's about all they would get to buy), and soon Rainier Pacific Bank was hanging its shingle.

Last week, it was back with a different message for its stockholders. In its quarterly statement to the SEC, the bank, which lost $35 million in Q3, reported it is "significantly undercapitalized," before adding in the kind of straight-talking honesty not heard seven or eight years ago, "it is unlikely that the company's efforts to meet the recapitalization requirements...will be successful prior to any further or more severe actions that the company's and the bank's regulators may take, including the assumption of control of the bank to protect the interests of the...FDIC."

At first glance at the financials and you'd think it's all a long way from the rosy promises that were made leading up to the member vote. Indeed, even today, as Kurt Jacobson of JayRay Communications in the bank's home market pointed out, its website notes that its conversion was done to provide "the new capital to aid in growing the business..."

Not All Are Equal

As Credit Union Journal has detailed more than any other publication, anytime a credit union converts to a bank charter there inevitably are the nebulous assurances of growth, prosperity and "new products and services." At second glance, you might think none of those grand plans panned out. Ahh, not so fast, my friend. They did, of course, just not in the way those members/customers had envisioned. The oldest trick in the Charter Conversion Bible is the multiple references to the pending land of Milk & Money. What goes unsaid is, indeed, there will be prosperity: just not for everyone. As every conversion has proven and Mr. Orwell foresaw, some members are more equal than others.

Space doesn't permit all the details here, but you can go to cujournal.com, search Rainier Pacific Financial Group (parent to the bank), and you'll see just how board members and the management of the former CU cashed out. Overall, on the first day Rainier Pacific Financial Group went public, its shares shot up 70%, and the directors and officers of the then $715-million institution who subscribed to 980,000 shares at the initial $10 price saw a cool $7 million profit on day one.

Other non-members lined up at the trough, too. Keefe Bruyette & Woods, the New York firm that underwrote the IPO, got $1.8 million for the Rainier Pacific conversion alone, and it handled several other CUs conversions.

At least the bank was being honest when it rolled out the slogan, "A difference you can count on." Well, not you, exactly, but certainly some people have done some counting.

Now here we are with 2010 nearly here and the customers of Rainier Pacific should be leveraging all those benefits that were to come. Instead, the talk is again of another potential name change (this time, a hoped-for acquirer) and its stock (Nasdaq last week notified the bank that because its share price was below $1 per share - about 30 cents - for 30 consecutive days, it has until May 5 to regain compliance or be delisted).

None of that likely matters to the former CU's board and management. Oh, some may still hold stock that isn't worth nearly what it once was, but many have cashed out already. Credit unions may find some solace in knowing that should the FDIC be forced to take over the bank, any losses will be passed back on the larger banking community that has over the years encouraged other CUs to join them.

At the bottom of a page describing its history, Rainier Pacific Bank notes it began life in a "humble janitor's closet." Seems fitting for the mess that has resulted.

Frank J. Diekmann can be reached at fdiekmann@cujournal.com.


Have you done something creative and effective to tell your credit union's story this year? What about the credit union story in general? Have you put the difference in "differentiation?" If so, heed the call for entries for this year's Frankie Awards. The Frankies recognize CUs that most effectively convey what a credit union is all about and why it should matter to members and non-members alike. Previous winners have shown budgets and asset sizes don't matter. And here's the best part — it's free and easy to enter.

Just e-mail me at fdiekmann@cujournal.com with a brief explanation and any support materials of what you've done to tell your story.

Deadline for entries is Nov. 25.