The chosen example has been the proposed SAFE/BECU merger in California to illustrate potential problems; but fiduciary malpractice in credit union mergers appears to be reaching pandemic proportions.
Let's look at yet another example of how financially unsound the credit union giveaway by the SAFE Board and CEO really is. No one disputes that the SAFE Board and CEO are in effect "paying" somewhere between $400 to $800 million in member equity [see link above] for the "privilege" of merging with BECU. A "privilege" that every SAFE member can obtain for free by simply joining BECU directly. In effect, the SAFE Board and CEO are forcing every SAFE member to pay @ $1,600 in cash/equity for the privilege of exporting their credit union service and control to Washington State.
Another damning analysis of what the SAFE Board and CEO are giving away is the value of the member relationships which SAFE as worked hard to build up over the years. In "marketing" terms these relationships are called "customer acquisition costs" (CAC). Companies literally spend millions on marketing to attract - and keep - customers, i.e. credit union members!
As you can see from the chart below, it costs @ $175 to attract a new member account. In the case of SAFE with 244,000 members, this means BECU is getting 244,000 new members for free! That's worth $175 x 244,000 = $42.7 million! "Privilege" has it's price, in this case "free"!!!
😎 But it's worse than you think! The giveaway by the SAFE Board and CEO is much, much larger! While SAFE does have 244,000 members, it manages over 550.000 accounts of all types according to the NCUA.
✔ Let's compute the real, total value of "CAC" giveaway by SAFE: $175 x 550,000 accounts = $96.25 million!
This is a bad deal all around for both SAFE and BECU members, but not really for the reasons you are stating..
ReplyDelete11:37am Well, at least we agree it is a bad deal!
ReplyDeleteWhat are your reasons for believing it's a bad deal?
11:39 am
DeleteThis deal is not good for SAFE members.
For SAFE stakeholders, and perhaps the member that wrote the op-ed, they should consider the real and practical things that will change, not your made up numbers.. Just a few:
1.) loss of total control and autonomy of their capital, pricing, where they invest, etc.
2) BECU has inferior rates, and a huge expense problem. When pricing aligns, let's guess which balance sheet gets re-priced.
3) Little future investment for SAFE. For capex, AI and technology investment, a 5% productivity increase on BECU's expense base is worth more in dollars than a 20% increase in SAFE's productivity. After they merge, for the next dollar of investment, where does go? Seattle or SAC?
4) People.. BECU's culture has apparently changed and is different. SAFE leadership reductions will be massive. SAFE's legacy culture will not be acquired and assimilated.
5) Service, only a matter of time where service will come from big operational centers with non-human touch points. SAFE members absolutely will lose what they are used to.
6) BECU and others avoid hiring in CA because of messy labor laws. Many, many jobs will be cut, and those that remain will be migrated out of CA over time. There will be local branches and local mortgage reps, nothing else.
SAFE CEO stays for x months to help sell the merger, but will be gone in 18 months. No local authority or autonomy.
Don’t know Boeing specifics and strategy, but this is probably a common scenario when really large CU’s merge with those way smaller.
ReplyDeleteI did look at their call report, though. here is a thought exercise…
Take our numbers at the end of 2021.. 51.6 billion in assets, 1.70% expense ratio, and $985 million in expenses. Take Boeing numbers - 30.1 billion in assets, 2.24% expense ratio, and 637 million in expenses.
2025: Us: Assets up 6.5 billion, Boeing, down 800 million (yes, no growth in 4 years). Us: expenses of 1.25 billion (up 275) and Opex of 2.14%: , Boeing: expenses of 1.07 billion (up 56%), and Opex of 3.43%.
Boeing’s expense ratio increased from 2.24% to 3.43%. Yikes. But, ours did too. Tech and the like costs money, reasonable to see some shift up. But let’s say Boeing only increased from 2.24% to 2.75%, which is more an increase than we had, and would still be .61% higher than ours.
At 2.75%, on their 1.07 billion expense, means they could support assets of 36.6 billion. After they merge, the new CU will be 33.6 billion in assets. Translation? Boeing’s current expense base should be able to support the entire acquisitions of SAFE’s assets and members. Said differently, SAFE’s current expense base of 100 million, should not be needed to support the new CU. What happens to it then? It gets cut, massively. Costs for local branches and those serving members will remain, management and staff are all duplicate. Boeing’s staff grew 31% in this timeframe, twice the rate of growth of their membership, and there was no asset growth. Seems like they are over-staffed and they don’t need SAFE IT, HR, marketing, finance, compliance, legal, etc… We all know what happens next.
12:12/2:13pm So bottom line:
DeleteWould you vote for the merger, if you were a SAFE Credit Union member?
Absolutely not!
ReplyDelete3:36pm Me neither!
DeleteWhat would you advise SAFE CEO Nabahni to do at this point?