This article originally appeared in the March 2005 issue of the Callahan
Mergers are like storms. If we don't see one at the moment, we still wouldn't
bet one isn't far off. This is true both of banks and of credit unions.
Let's look first at bank mergers, which are considerably different from credit
union ones. Bank mergers are meant to be victories for stockholders, immediately
for those of the acquired bank and presumably in the future for those of the acquiring
Bankers do not really consider the customers at all, or service to them. At best
bankers hope or presume the post-merger customers will keep coming in droves.
In Florida, banks are started just to be sold. Ten or so investors put in a million
dollars each and work for a few years to build branches and attract customers,
all with the purpose of looking attractive to an acquisitive out of state bank.
An out of state bank comes in, buys the small bank and pays off the investors.
These investors, of course, have a celebration. The media and the public treat
them like stars - "You sold to them! Wow!"
Service and Value Rather than Money
Credit union mergers in high contrast have always been viewed with ambivalence.
A merger was something a regulator imposed, or stemmed from a credit union being
too weak to stand on its own. The movement has never felt comfortable with mergers.
But a credit union merger should be the polar opposite of a bank one. Its success
or worth should be measured not in stock prices or the like but in value to
members. If a credit union merger enhances value to all members, then it is
good for both credit unions and the credit union movement.
Consider again a bank merger. A bank in play to be acquired considers bids from
other banks, and most often accepts the bid offering the most money. But a credit
union needs to use opposite criteria. It should in effect be saying to potential
acquirers: "Show me how you can best increase the value to my members."
Here might be a list of its questions: How will you give the best service? How
many branches do you have? What are your fees? What electronic services do you
offer? What has been your member satisfaction ranking over the last 10 years?
What is your philosophy?
Thus a credit union looking to be merged might draw up a merger template, one
that potential acquirers would fill out. This makes, of course, for more orderly
decision making. But also, when the decision is made about which credit union
to merge with, the decision is going to make sense to everyone - regulators,
the media, members in the credit unions -- who look at the template answers.
There is the issue of paying departing staff of the acquired credit union,
especially the CEO. The acquiring credit union might pay a premium above salary
if the acquired credit union CEO is going to be out of a job. This might seem
like an undue expense, but it rather represents a good investment in the future
for the acquiring credit union. If the coming merger will create economies of
scale, efficiencies and better service for both member groups, then a payment
to departing CEO and staff is a small price to pay. It is a short-term payment
for gaining long-term value to members.
(It might also be said of smaller acquired credit unions that senior staff have
over the years created value and they should be allowed to carry some of it
away with them, especially considering that they likely have been only modestly
paid to that time and modestly vested in any pension account.)
Sooner Rather than Later
In any event, good credit union mergers should be celebrated: They make for
a better, stronger credit union movement. In good mergers, both the acquired
membership and the acquiring membership are better off.
In fact, it might be said that many mergers should be done earlier rather than
later. A struggling credit union is going to lose members, ones who likely will
never come back to the movement. And a struggling credit union is going to waste
resources. Better then to merge early. The movement will not lose members, but
rather increase the value proposition to those members. Economies of scale and
efficiencies will be realized sooner rather than later.
So credit union mergers are not to be dreaded. Rather they should be seen as
a means of improving member service and thereby making a stronger, healthier
credit union movement.