From Bill Brooks: Values Should Lead The Way
Credit unions were charged with a mission of providing a place to save and borrow for members including those of modest means. The structure was based on 7 cooperative principles developed in 1844 by the Rochdale Society of Equitable Pioneers in Rochdale, England.
To evaluate success, you need a yardstick. To call yourself a credit union, the Rochdale principles are the yardstick. One has to consider whether today's efforts to change that yardstick is changing the entire credit union model? And, misleading potential members about our virtue.
The principle of member owned and controlled is gone with the wind! Members have little control over their credit union. The directors of most credit unions are self-appointed and self-sustaining. It was a pleasant surprise that SECU successfully tossed out some officials several years ago. I believe since then it has been a return to business as usual on the board. There may be some democratically controlled credit unions still out there, but I don’t have time to search for a needle in a haystack.
A major principle practiced is cooperation amongst cooperatives. The merger mania is a total failure to follow the concept of cooperation amongst cooperatives. The latest credit union, where I served as CEO, had a large list of suitors professing a desire to lend a helping hand, but also wanted a discussion about merger. Most members don’t understand the value of their organization. If they knew their rights to the reserves of the credit union, they would never vote to merge.
There may be good reasons for the merger, it is just that the members are getting screwed and the compensated insiders of the merging credit unions are usually the winners.
It is not that the changes that have happened over time have not been necessary. What is clear is that credit unions are presenting ourselves to be something that they are not. Presenting ourselves to be something that we are not is "unprincipled" Rochdale fraud. There is nothing wrong with the 7 principles, Rochdale still provides sound guidance.
But there is a major problem with practice.
"I can't believe what you say, because I see what you do." - James Baldwin
“If they knew their rights to their reserves” they would never merge. “ Not a credible view I you think it through. Members are only entitled to their reserves if the CU dissolves. No obligation to payout reserves at the point of merger and it doesn’t happen in context. Which Biatd would vote to acquire a CU with no capital and liabilities worth more than its assets? That would be negilent. And, not for nothing, not approved by the regulator. Ironic that he misleads memberships way when he accuses CU’s of doing the same thing. And, BTW, CU mergers are the industry’s best evidence of collaboration.
ReplyDeleteNot sure you understand the process. Loans are negotiable instruments and can be sold just like investments that also could be converted to cash. All other assets can also be converted to cash and liabilities paid off. The remainder is either added or subtracted from the total reserves and the lover balance is distributed to members.
ReplyDeleteAbout two years ago, a Partner in a CPA firm that had a small client that they work with was looking to merge or liquidate. He asked if I knew of a credit union that I would recommend
I actually was their examiner in the 1970's and was surprised to hear they were still in existence,. They actually existed to help members borrow money to buy their stock options. They did have a small consumer loan portfolio.
It seems the sponsor company was merging, and the surviving company did not want to sponsor the credit union.
I looked at the economics of the situation. I understood the merger would be simple. However, it would be a disservice to the members. I suggested liquidation as an alternative. The existing members got there deposit back plus a liquidating dividend. They could take the money and put it where they wished.
The credit union chose liquidation and seemed to make all the members happy. B
Like I said, members are only entitled their capital in a dissolution or liquidation - so thank you for providing an example of that. And, yes, I do understand the process - it’s not complex. Luquidate.. sell all assets, payoff liabilities and hope there is something left over.
DeleteThe other scenario is some notion that members of acquired CU’s should have their capital paid out to them at merger. Sounds great, but point is no acquiring credit union would take assets without capital to support those assets. In doing so, you give away existing members capital and acquired members, even after they got paid their original capital. It’d be great if you can share an example where that has happened.
The point is that members are voting on issues without full disclosure of the issues. B
DeleteNot true. What’s one example of that?
Delete7:19pm Posted this even though it is entirely incorrect. The Board of directors can pay out all or part of the reserves/equity in the event of a merger or conversion. The commenter is simply not right and ignores the several examples given.
DeleteDo note the tone of the commenter - "acquired CUs", "acquiring credit unions" - certainly a commercial, business transaction from the writer's perspective.
The last paragraph is however sustained silliness from a business, merger/acquisition perspective.
Shareholders in private business would never give away their ownership rights without fair compensation. Perhaps the writer can share examples where this happens... it doesn't.
The world has changes - for better or worse - an in an open membership/ digital world credit union mergers no longer are justified - and appear to be a criminal taking by "acquirers" and and self-enrichment by "acquired" insiders.
9:24. You need to read more carefully. You miss the point. The only time there is a legal obligation to pay members their reserves is in the event of a dissolution or liquidation. The Board CAN pay out reserves in the event of a merger. Never said they couldn't. They are under circumstances REQUIRED to, and there is a big difference. So when people like you make false claims about how a member's share is worth 4400, or this poster emphasizes the "rights to reserves" it misrepresents laws, regs and what happens in practice.
DeleteThen, you can educate yourself. Apparently you're triggered by the term acquire, but apparently don't know the NCUA uses that term specifically, and in every CU merger, a merged CU and an acquiring CU
Finally, you can talk all you want about how a Board CAN payout capital. They can. Give one example where a CU would be willing to merger with another CU that brings no capital to the table because it paid out to members. Think through it further. So CU's merge, members of an acquired CU get paid their all their capital, but have a share account in the new CU, which means they now have a "right" in your warped sense of the meaning, to the capital of the new combined credit union? Do the math, think through it. Go back to econ 101 when they taught you (or at least the rest of us) that there is no such thing as a free lunch.
What you continue to not get or ignore is that in a CU combo, it's a BS combo and assets and liabilities. No one writes a check to the other CU or its members. Their capital goes with them! Comparing that with a purchase of one company buy another for consideration is idiotic.
As a fellow recovering CPA you probably heard repeatedly the old joke: if you are a CPA competing for a client, when asked what does 1 plus 1 equal, to get the client your answer needs to be whatever you want it to be!
DeleteThe Statement of Financial Condition does not come close to reflecting value. Actually, the merging credit union sellout CEO who stands to make money from the merger underestimates what they could make. Generally, it is some time of less than golden parachute of 3 years of salary and benefits.
If the acquired credit union understood the value of the credit union if they converted to a bank, they would never consider merger. Years ago, a fellow CEO converted an hundred-million-dollar credit union to a bank and made over a million dollars. I wonder how much Gary Base collected.
The bull that the near to retiring CEO wants to provide better services that member are demand is horse hockey! Many credit union had a viable membership base and were profitable. Membership may or may not been demanding more services. Probably, the CEO was too darn lazy to figure out a way to develop the service. B
9:24 am As usual, always a belated "clarification" when inanities are pointed out... the classic "yes butt" !
DeleteGoing to give this anonymouse a name for future posts "Narcissus".... seems to fit... will appreciate the recognition I suspect... "entitled"!
LOL! Belated clarification? No clarification was needed without you trying to correct an argument or false fact that was never made in the first place! You're so quick to prove you're right on everything. My advice: stop, pause, read slowly, think, and then respond.
DeleteAs far as nicknames go, call me what you want, but I prefer Professor. It represents that I am the one who educates on your readers on real facts, and that I constantly call your BS and take you to school. - Narcissus