SAN DIMAS, Calif.-As its new name implied, Western Bridge Corporate FCU was designed to be a short-term bridge to something new — ideally, a new corporate capitalized by member credit unions — that was made up of something old: most of WesCorp's operations.
Other "bridge" corporates were doing the same thing: reorganizing and putting together capital plans that required natural-person credit unions to cut another check after having watched their Paid-In Capital vanish.
It would prove to be a bitter pill in parts of the country where corporates had failed and been placed into conservatorship, or had seen their capital significantly eroded. In most places, credit unions swallowed those pills. But not in San Dimas, Calif., where many believe Western Bridge's recapitalization effort was doomed from the start.
"You get burned like that, how can you go to your board and say 'let's get behind Western Bridge,'" observed Stuart Perlitsh, CEO of Glendale Area Schools FCU, summing up the view of many.
Perlitsh and a number of others say Western Bridge's poor financial performance (Credit Union Journal, Aug. 1, 2011) and its business plan to raise capital and create a new corporate called United Resources were just not enough to overcome the anger many felt toward the former Western Corporate FCU.
Greg Stockdale, CEO of the $35-million 1st Valley CU in San Bernardino, Calif., was on the Western Bridge advisory committee until early 2011. He said he initially planned to back Western Bridge despite WesCorp's serious stumble, until he saw the United Resources plan.
But others disagree and say other factors were at work.
'It Was Not Funny'
"They wanted so much in capital-2.5% to start-and then you had to hold 10 times that available. I said, to the advisory committee and anyone who would listen, 'That's absurd. No one will sign up for that.' Compared to what the other corporates were asking, that was so far out of market it was not funny."
Stockdale eventually guided his credit union to Corporate America in Birmingham, Ala., which was not asking for any capital. 1st Valley CU is now clearing items directly with the Federal Reserve.
As the plan was being put together to capitalize United Resources, Stockdale said he shared his concerns. "When I saw that plan I told the advisory team what my credit union was going to do. Most of the other western credit unions, in my opinion, just went silent and let time expire."
Similarly, SAFE Credit Union in N. Highlands, Calif., analyzed the recapitalization plan from many angles and hired consultants to run several alternatives. While not passing judgment specifically on the plan when he spoke with Credit Union Journal, SAFE's CEO, Henry Wirz, explained what kept SAFE from signing on with United Resources is that under NCUA's new corporate guidelines, "We did not see a business model going forward that said much in terms of success, nor could it give us any kind of service or cost advantage going forward."
Today, SAFE, too, is doing item processing directly with the Fed, which did include some up-front costs, such as for image storage. Wirz acknowledged that the first year with the Fed is more costly than it would have been in year one working with United Resources due to those up-front costs, but over a longer period of time the credit union will save money.
'Not A Good Barometer'
Few people put in more time and effort attempting to help launch United Resources than Matt Davidson, EVP for the $1.3-billion Kern Schools FCU. Davidson chaired the advisory board for Western Bridge.
Today, Davidson disagrees with CEOs who point their fingers at Western Bridge's proposed financials as the reason they were reluctant to invest.
"The financial performance of Western Bridge during conservatorship was not a good barometer of what its performance would be going forward," said the former United Resources chair. "They had no capital...(CEO) Phil Perkins would have taken them on to greater things; he is an outstanding leader."
But there were other problems with the recapitalization bid among credit unions, according to Stockdale, who said many CEOs did not like how the recapitalization plan was presented by the United Resources board.
"The board presented that plan to the advisory committee as a done deal; they did not bring up several plans and ask for suggestions. They did not go to the advisory committee about what they wanted to get done. They just pushed the plan through, then went out thumping the pavement saying, 'We need to get this done.'"
Now as he looks back, Walter Laskos, WesCorp's former director of public relations, believes that in the time leading up to the conservatorship, had WesCorp done more to engage members in what was going on, explained the true state of its OTTI sooner, and shared more detailed information, fewer CEOs may have turned their backs on recapitalization.
"I was not a VP and upstairs in the meetings at WesCorp. I got information from my boss, Kevin Lytle, then VP of marketing and product development, so this is just my opinion," offered Laskos. "But had we communicated more strongly to the members, explained OTTI sooner, this was a whole new language for many. You can sit here today and say 'what if?' We'll never know."
Former WesCorp CEO Dick Johnson also believes that had WesCorp done a better job explaining all the intricacies of its operations, communicating clearly to members how the corporate did things, the end may not have arrived when it did, and United Resources might have received more support.
"We did such a fine job for credit unions, made it painless for them to do business with us," said Johnson, blaming himself. "I wish I had done more to tell credit unions how great we were. In my view, it is ironic that the efficiency of WesCorp staff in serving members as invisibly as possible may have contributed to members' reluctance to recapitalize. WesCorp had been too modest in communicating the value of what they were delivering. As a result, too few members had an appreciation of how customized to individual credit union's needs WesCorp's products and services were, and many were too preoccupied with confronting their own losses to approve Western Bridge's plans for renewal."
'Until The Very End'
Those viewpoints from outside the meeting rooms in which the Western Bridge member advisory committee and board met, differ from the perspective of Davidson, who led the recapitalization effort. "Until the very end, the last day, I was always hoping for a miracle. The fact United Resources did not make it didn't really hit me until then."
Still, long before Davidson began hoping for divine intervention, his hopes had begun wavering earlier in the recapitalization process, in April and May of 2011, when he began making phone calls to CEOs of large California credit unions, with many of whom Davidson had personal relationships.
"I began getting responses like, 'We'd love to help out.' I got that from people who I worked with for several years and respected, and still respect, and they just said, 'We are not going down that road.' I said to myself, 'We are in trouble.'"
Davidson suggested that many mid- to small-sized credit unions were waiting for the large CUs to show their support. "I think people were looking to others to step up. But we were not successful in gaining enough support of the large and influential credit unions. Patelco stepped up, but that was too late."
Yet Phil Perkins, CEO of WesCorp following the conservatorship, disagreed that the plan for United Resources was too big. "WesCorp used to be a Rolls Royce, but we knew we had to take that Rolls Royce, go into the workshop, and come out with a Chevrolet, which is what we did. The proposal put forward was predicated on a balanced plan that was able to make money from the portfolio and operations. I felt very strongly that simply reacting to the market conditions today and building a business that only made money from item processing and did not attempt to do anything with balances was shortsighted and unbalanced.
Taking The Temperature
In retrospect, Davidson wonders whether two adjustments to the plan would have changed the outcome. The first has to do with better communications.
"Phil (Perkins) is very open and transparent. On our website we put up a scorecard of any credit union that signed on and had a thermometer that showed exactly where we stood against goal. Maybe we were too open in communicating," said Davidson, suggesting that the cool temperature that thermometer showed may have dissuaded some from coming on board. "I don't know. Did some sit back and say, 'OK, they are at 30%. Let's wait until they reach 60% before we commit'?"
The second hindsight adjustment has to do with money. "If I had to do it over again," continued Davidson, "I think perhaps we could have asked for less capital and gotten a pared-down version of the business plan. Our business proposal was to provide all the corporate services, not just item processing. We asked for enough capital where we would not have to go back in a year or two and ask for more capital."
Taking The Ball And Going Home
The plan for United Resources at one point called for it to merge with Members United Bridge Corporate, but that was scuttled by NCUA in July 2011, and the plan lost the support of the Summit Roundtable CUs in California. It was a defeat, Davidson realizes in hindsight, from which the recapitalization plan could not recover.
"I understand why NCUA did what they did," continued Davidson. "They could not have approved two conserved corporates merging. That would have created a competitive imbalance in the corporate world. But it's kind of sad. That decision got a lot of large credit unions angry, angry with NCUA, and I think they said they were not going to have anything to do with the corporates and decided to go outside for item processing and investment services. It was sort of a 'take my ball and go home' type of thing."