Accept Your Fate, Or Get Out While You Still Can?

The Jan. 31, 2011 publisher's column reminisced about the days when "charter conversion" headlines helped sell newspapers. In the past year, the headlines have been about "unfair assessments wiping out earnings and decimating balance sheets, even at well managed institutions" and the "lack of access to capital."

While acknowledging the NCUSIF assessments are "unfair," the publisher implies readers should accept their fate because "you already know what your mother told you about life" (it's unfair), and "that's life inside a cooperative industry." Well, my mother always told me that if you smell smoke in the movie theater, get out, because "where there's smoke, there's fire."

Let's get one thing straight: as one of the publisher's so-called "charter conversion clan," I am not the one yelling "fire," as one critic claimed several years ago. Today, credit union leaders see the smoke for themselves. The trade papers, trade associations, legacy industry consultants, and NCUA are doing a fine job publishing the manifold industry woes.

In truth, for more than a dozen years-well before the current economic crisis-our firm has provided up-to-date, factual information and the tools for credit union executives to evaluate the feasibility of charter conversion and, if appropriate, implement the switch to a bank charter. Nevertheless, the publisher could not resist taking a swipe at our firm, calling us "profiteers" busy working the phones and sending e-mails with "sales pitches" about conversions.

He also took a swipe at the intelligence of hundreds of credit union board members. Under NCUA's new rule which requires board members to "demonstrate basic financial literacy skills," he implies such skills are absent at credit unions whose boards have concluded that a better and more secure future for members is possible with a bank charter. When critics can't produce facts their only weapon is hurling insults.

The NCUA's relentless anti-conversion rulemaking, supported by credit union trade associations, is perhaps the best indicator of their insecurity about the future of the credit union charter and the unflagging interest in charter conversions. They've been building a wall around the industry to create a sanctuary.

In addition to the publisher's rancorous column, CUNA's economists recently went on record making unsupportable claims about conversions, FDIC premiums, and bank stocks. The anti-conversion dogma is hitched to the decade-long ruse that Congress will provide a solution to current day problems with relaxed capital standards, secondary capital, and regulatory relief.

The table at right sets the record straight on what's really going on with charter conversions, the FDIC fund, and the banking industry.

In conclusion, it is widely acknowledged that the credit union charter is facing daunting challenges. Well-capitalized and profitable credit unions continue to be called upon to subsidize the rest of the industry. Local control and independence will be sacrificed as many of the industry's "thought leaders" push hard for more costly "cooperative alliances," sacrificing the strong for the sake of the common good.

It is almost inevitable that Congress will be forced to act to clean up the credit industry mess, as it did during the S&L crisis of the 1980s. Such action may further limit the options now available to healthy credit unions and undermine what capital they have. For those credit unions moving forward with a charter conversion, their strategy is simple and compelling. Escape while you can.

Alan D.Theriault is president of CU Financial Services in Portland, Maine. The firm has been advisor to the majority of credit unions converting to the bank charter. Alan can be reached at 800-649-2741, or at atheriault@cufinancial.com