... has merged
with ...
Dogwood State Bank, a strong Raleigh-based, North Carolina community bank, announced yesterday that it was merging with Towne Bank, which is headquartered in tidewater Virginia [here read the details at BusinessNC].
The combined bank will have assets of @$22 billion. The owners of Dogwood bank did well, selling the bank for $476 million - around 2.2 times the net worth of the bank!
So lets take a look at why credit union member-owners nationwide should strongly oppose having their credit unions given away through mergers with other credit unions. It's "bad business" all the way round!
Using SECU as our example, we have a financial institution owned by @ 3 million members, mostly from North Carolina. SECU has assets of @$55 billion and a net worth of @$6 billion. SECU also has a well-established service network, experienced staff, and has had in the past a reputation for integrity and fair dealing.
Using the "2.2x net worth" purchase price benchmark in the Dogwood/Towne Bank merger, the market value of SECU to its member-owners would be @$13.2 billion (2.2 x $6 billion net worth)! Each of SECU's 3 million members would be entitled to a payout of @ $4,400. That would represent quite a wonderful boost for individual SECU members as well as the North Carolina economy in general!
😎 That prosperous credit unions nationwide are being merged without ownership interest payouts to the members is financial foolishness. CEOs and Boards which recommend such transactions should be held accountable - and prosecuted if possible.
✅ The financial best interests of members are being misrepresented. The members are being hoodwinked.
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ReplyDeleteAssume you are joking about some sort of prosecution. Can you even find regulatory orders, ceases and desists or other regulator actions taken on a board because they put a merger to their cu for a vote?
9:30am Not joking at all. If members were correctly presented with the choice of 1) merging for free or 2) receiving $4,400, believe we all know how the vote would go. Think that's called fiduciary duty for a board of directors.
ReplyDeleteBut why argue, just put that choice before the members of each merger and let them choose. Those that want to go "for free" can, those that want the cash can also. That's fair isn't it...actually very democratic!
It's unfortunate you are misleading members about what this means and how it works. You are suggesting something to them that is not realistic or practical and for that matter, legal.
ReplyDelete10:41am Sorry...entirely legal.
ReplyDelete10:42, well partial sales are legal, but I'll concede you point - not illegal
Delete9:30pm Thank you for confirming that it is entirely legal. That's the key point.
DeleteI'm certain folks trying to follow all this are trying to figure out what's up and what's down.
To me the purpose of the discussion is to try to let credit union boards and members know what possibilities exist for the sale/conversion of a credit union into private hands.
History and common sense say that the conversion of the member-owned equity will happen in the future. In SECU's case you have $6 billion sitting there with "nobody's name on it".
Assure you that "someone" will come to claim that $6 billion for themselves. Just human nature to exploit the ignorant "suckers". Happens all the time in finance!
Hate to see that happen to the actual owners, those folks in North Carolina who built the place... but perhaps screwing folks out of something they own is what the world is about.
Hate to see credit unions come to that end, but...
You're back in fantasy world. Find a credit willing to take marked assets and liabilities only that will support the merging credit union paying out 100% of their capital to the merging members
ReplyDelete10:44am The "la-la finance" is not mine. If you'll re-read the post, you'll see that highly sophisticated folks are willing to pay a premium - in this case 2.2 times net worth - for a viable financial institution. SECU is just such an institution... currently.
ReplyDeleteWith most credit unions, especially SECU, if you "marked to market", the premium value becomes obvious.
Do you believe the $6billion in book value of SECU is a fiction? La-la! Your "accounting expertise" is higher than the CPAs and NCUA which both value the balance sheet closely on a yearly basis? Don't think so.
If credit unions want to play in the real world of finance, then do so; but stop ripping-off the member-owners by giving a valuable organization away!
Can't have it both ways... time for credit unions and their regulators to put on their big boy pants!
No, of course I don’t think the 6 billion is a fiction and never said anything that implied that.
DeleteFYI, neither the NCUA nor CPAs value the balance sheet closely on a yearly basis. There are a few assets, such as an MSR, AFS, and certain investment accounts (e.g. CDA) that have to recognize gains or losses and are valued. Most of the assets - all loans and HTM investments, are not valued yearly.
7:32pm Sorry you're wrong on that. Both CPA's and regulators of all stripes are primarily involved with the confirmation of business balance sheets and the estimates and valuations by management which underlie them.
DeleteYou're wasting folks time... ask a CPA or regulator... or simply read any CPA opinion letter.
10:58... Well actually the $6 billion is inaccurate. We had 5.267 billion in capital at the end of June.
DeletePLEASE prove me wrong!!! Can be done one of two ways 1) explain to me, or better yet, provide me instructions on how I can sell my member share for 4400. You're right - I'd say yes to that, or 2) Explain, in brief and simple terms, how an extra 6.2 billion above "market" of a CU's book equity (post mark), is paid out.
ReplyDelete11:00 am Many ways to do it. One simple way, the Board can vote to close a credit union.
DeleteEasy to transfer (or sell) the accounts and loans to another institution (in fact LGFCU just did that in June with 400,000 members moving to CIVIC).
After that is done, divide up the remaining reserves/net worth and right each member a check.
And don't forget that there are now hundreds of credit unions anyone can join (like CIVIC) so it's not too difficult to find another institution to use
3:01. Yes! You have correctly characterized the one and ONLY way all of a CU's capital is paid out to members. It's simple, in the event of a voluntary or involuntary dissolution of a credit union, the assets are sold or liquidated, and the liabilities are paid off.
Delete10:07pm Nah, not right. See 9:31pm and 9:54pm below. Many options...
DeleteAfter all, if someone can be prosecuted for being irresponsible with $4,400, it must really be hard money I have a legal claim to.
ReplyDeleteExcited for the response. Could use the $4400.. I think we're overdue for a trip to disney world.
Just because it's not done because CEOs and Boards are enriching themselves does not mean it shouldn't be done. CUs are non-profits and that money is the members' equity. Appropriate and the right thing to do.
ReplyDeleteLooking at NCUA's basic negotiated merger terms, would this member equity fall under the "bonus dividend or interest rebate"? Those terms are based on factors such as the members account balances and loan activity. Other terms mentioned include employee buyouts, bonuses, and severance. It also says the members of the merging CU must vote/approve the merger proposal. I am thinking SECU is more likely to be the continuing credit union in a merge, in which case those terms would not apply. (Info is based on web search results so not sure info is accurate/current.) -c
ReplyDeleteYou're back in fantasy world. Find a credit union willing to take marked assets and liabilities only that will support the merging credit union paying out 100% of their capital to the merging members
ReplyDelete1:57pm Here's the easy question which will prove who is - and who isn't - in financial fantasy land. Ready?
Delete"Would you pay $1 billion to buy SECU where is, as is?"
In case you miss how that's done... You write the credit union a check for $1billion and give it to the Board who adds it to the net worth - increasing it from $6 billion to $7 billion.
You now own a financial institution worth $7 billion and owe your backers $1 billion. Pretty shrewd of you!
Think you could find investors that would lend you $1 billion to buy 100% ownership in a "bank" worth $6 billion?
Why not call up TowneBank or WellsFargo and see if they'd do that deal!
So now you understand why giving away credit unions doesn't make much sense...
The tired merger argument again. All this shows is that you don’t understand the difference between a merger and a buyout. So much for the CPA credentials.
ReplyDelete4:20pm You're probably right. Maybe I should say it is financial folly for any credit union to merge for free with another credit union, when the credit union could sell itself and send each member owner a check.
DeleteI still like the the option of giving the members a choice - merge or cash out..
Is that better?
So who would a credit union sell itself too? They can’t sell to a bank and there is no consideration in mergers between two CU’s (meaning money doesn’t change hands like it does with bank mergers).
Delete6:17 pm Why do you think a credit union can't sell to a bank?
DeleteWhile very rare, CU’s have and can do P&A agreements where they sell substantially all assets and liabilities to a bank, however that includes capital.
ReplyDelete8:16 pm Rare or not glad you confirm that it is indeed quite possible yto sell a credit union to other parties..
DeleteYou miss on the statement that the "sale" of capital is required... it isn't. A credit union can by law sell any or all assets to a bank, credit union or any individual or enterprise for that matter .
After you sell all the assets and refund depositors (actually you can usually sell deposit accounts at a premium to other institutions if you wish to do so)... what's left is the equity/reserves/net worth... that's when you cut the "big check"' to the member-owners!
Members don’t own tradable equity shares and direct payments to members are restricted.
Delete8:30pm Again thanks for confirming a couple of facts. 1) The equity is in fact owned by the individual credit union members and 2) though direct payments to members are normally "restricted", such distributions are certainly not prohibited and can legally be done.
DeleteThat's why a board which "gives away" a credit union and the equity owned by each individual member should be held accountable.
We all agree that given the correct information and a choice, most members would take the cash payout .
If so, the board has breached its fiduciary duty, requiring that the best interest of the members be represented.
8:26, Respectfully disagree and you may need to do some more research. Yes, CU's are permitted to sell assets, branches, etc. And, in a P&A, where even most assets and liabilities are sold, that but that is not a full acquisition, and the liabilities sold includes the capital. In any event, there is no scenario, where a bank does a full acquisition of a CU (which has never happened), or buys a big chunk of their balance sheet (which is rare, but permissible) in which the CU's capital is paid out in full to members. There are restrictions against that.
DeleteEven if there weren't, I'd love to hear a viable scenario where a bank would want to acquire all the assets and liabilities, minus the capital of a CU.
Is this a joke? Members would not get paid out in a merger since no assets or deposit accounts are “sold off” to other institutions.
Delete8:49 pm Need to read a little closer... the discussion is whether or not a cu can be bought or sold with members getting a payout of the net worth.
DeleteAnswer is yes as all agree. You seem to be stuck on the idea that a free merger give away is the only option.
It is the worst option, but definitely not the only option.
8:42 What does it mean that I own the equity? Does it mean I can sell it? Can I close my share account and get paid out on my equity? Nice to say it, but you continue to ignore the practical implication of it. It's not a share of stock. Members did not make an equity investment in the cooperative.
Delete8:42... You are backtracking a little, which is good to see. Yes, forget merger or sale scenarios for a second. Capital can be paid to members. Many credit unions pay an annual one-time dividend. Legal and not an uncommon practice. We have a coupla hundred million in excess capital, and nothing prevents the Board from giving it back to us right now. An important point, however, is that members are NOT entitled to an equal amount. When these payouts occur, often its calibrated to the depth of relationship on the loan and deposit side.
Delete@9:27PM So you think that members forfeiting their membership to be paid out in the event of a buy out or when their CU gets sold is the best option? Are you kidding?? Wildly misleading
DeleteWhy would every secu member get the same payout? Thats not fair AT ALL. First off, they aren’t trade able shares. I only have one vote per “share”. Second, my “equity” as you say is just what’s in my share account so you’re saying that someone with $25 in their acct gets $4400?? Quite hypocritical from all they hyped up “fairness” talk from you. Do you know how any of this works or is this just another ruse?
Delete9:31pm Again glad you acknowledge that a "capital payout" is indeed possible, prudent and legal. As you say, not an "uncommon" practice at all.
DeleteYou're in error however with the statement that an "equal" payout is not permitted... just dead wrong on that.
Some concocted "calibration" is not required. In fact "relationship" or some other hokum is just that...hokum.
9:49pm Of course entitled to your opinion on "fairness", but it is just that... an opinion not grounded in fact.
Delete9;45pm What you're missing is with open membership at most credit unions; the member can take the payout rather than "merge" and simply open an account the next day at the other credit union.
DeleteNot forfeiting anything; simply a new member with all the benefits at the other cu... and have a pocket full of cash. No brainer!
and what you're wrong about is members can't just take a payout unless the credit union dissolves. Research it. I did. I don't speak with conviction unless I am informed.
Delete10:09pm Appreciate your "conviction", but you're wrong on your facts. "Show your work" if you are sure you're right...
Delete@10:05PM Can you explain, without any spin, where this money comes from for the payout?
Delete11:20 pm Sure, the "reserves/capital/net worth" in any credit union belong to each member-owner.
DeleteIn the case of SECU, those reserves are currently equal to @$6 billion...but the credit union as a going concern is worth a whole lot more (see the example in the post of the Dogwood Bank merger).
Towne Bank paid 2.2 times the actual net worth of Dogwood to acquire the bank.
But the members wouldn’t be losing anything or selling anything off. They’d be part of the new bank/CU nor did they invest in the cooperative in the first place so why are they getting a check cut for doing nothing?
DeleteDon't despair - not sure the industry will get its capital stolen and come to and end just yet.
ReplyDelete10:15pm Hope you're right. History would indicate you're naive...
ReplyDelete10:17.. Here a couple of industry stats:
Delete2000
-10,316 credit unions
-$442 billion aggregate assets
-$47 billion in capital, 10.6%
2024
- 4,449 credit unions
- $2.1 trillion assets
-$255 billion capital, 11.2%
10:38am Thanks! Emphasizes the problem and looming risk clearly. There is now $255 billion bucks which belongs to individual credit union members up for grabs
DeleteThe wolves are circling the sheep! Hate to see it happen....
what's the saying, "the writing is on the wall" ...
ReplyDelete