Credit Unions: The Godfather Mergers - Part IX

  “I have learned more in the streets than in any classroom.” - V. Corleone ** 

You learned in Part VII [link] what you already knew, successful businesses sell for a premium over book value.  That's just common sense, basic economics, sound business practice - except with credit unions! 

  "Can’t wait for you to explain why BECU [a current, proposed merger] would accept something that you can’t show has ever happened." 

Have you paid attention to the growing number of recent purchases of banks by credit unions nationwide? Here take a look at some articles [link] or here's a list [link]. Here is an interesting fact about those purchases:

"The premium required to undertake the transaction might not make economic sense. For example, a credit union cannot legally purchase bank stock in most instances. It must purchase the assets and assume the liabilities of the bank, which is then liquidated.  The consideration must be paid in cash ... All other things being equal, a credit union purchasing assets and assuming liabilities must be willing to pay more for the target institution than would a bank to offset the tax liabilities and additional legal costs." [link]

✔ Just in case you might miss the point. Trolls try to claim no credit union [BECU in this example] would take on another credit union, if the reserves/equity was fairly paid out to the [SAFE] member-shareholders. Clearly not true, a bit silly, just more troll trash... here's why.  

When a credit union buys a bank, it pays a premium (much more) than book value for the bank.  The credit union pays out to the bank shareholders the book value (equity/reserves/capital) plus the premium in cash! 

To give you an idea of the premium price being paid for banks, take a look at this graph:

 

* As you'll, note the premium paid nationwide has been 182.70% (1.8X) of book value, in the west coast market the premium was 200.50% (2X) book value. [link]

✅ If you can acquire a bank and pay out the equity in cash to bank stockholders, why would you try to screw the loyal member-owners of a credit union [SAFE] out of their legally owned equity? 

😎 Why is the Board of Directors of SAFE CU giving away a business owned by its' member-shareholders and clearly worth between $400 million (1X) and $800 million (2X)? 

 Because those 244,000 folks in California are all rich, they don't need it?

 

 

 

Credit Unions: The Godfather Mergers - Part VIII

 

"We’re both part of the same hypocrisy.” – M. Corleone 

  "We were promised to be enlightened as to why BECU would accept the merger. That isn’t in here! [link Part VII] How come? Couldn’t come up with a single reason?" 

Our troll seems to be on the verge of dampening his britches!  Being all wet in these discussions is unhelpful, so lets proceed with the valuation of a credit union as a business. 

We saw in Part VII that SAFE CU [being used only as an example] has a net worth of @ $400 million. Those reserves legally belong to the 244,000 member-shareholders of SAFE. The 11 member Board of SAFE has decided to give that $400 million in cash away for no apparent good reason - instead of disbursing the $400 million to each SAFE member. Remember, any member of SAFE who would like to join BECU can do so today for free! [ at BECU: Membership is free! - link]. 

But to help our troll stay dry, here's why BECU should still jump at the merger, even after the $400 million in cash is distributed to the rightful owners - 244,000 SAFE member-shareholders.  

✅ First, there is again no dispute that BECU would still receive a thriving $4 billion asset business, 244,000 additional members, 21 branches in 13 cities, a knowledgeable, experienced, local staff, with a strong reputation for service. What's that worth?

✅ Second, BECU will be acquiring: " SAFE Credit Union is one of the fastest growing credit unions in the Sacramento, California area." -according to Caitlin Goettler, BECU Public Relations Manager 

✅ Third, successful, "fastest growing" businesses generally sell for a premium well in excess of their "book value". We're confident that the book value of SAFE is @$400 million [see link for calc.]. The premium paid by an acquirer for a financial institution can vary by location, clientele, product line, reputation and  track record; but the premium paid is generally between 150% (1.5X) to 200% (2X) of book value ($400 million)!  

✅ That would mean the approximate market value of SAFE Credit Union is between $600 million and $800 million in today's marketplace. 

Said another way, even after fairly distributing the $400 million in reserves to existing SAFE members; the acquiring institution [BECU in this example] would still be receiving a free, thriving, credit union worth $200 to $400 million!

✔ You can be certain that BECU with the help of Jefferies, LLC understands the value of SAFE Credit Union...

😎 It appears clear that the SAFE CU Board does not...

  "A lawyer with a briefcase can steal more than a hundred men with guns."  - Don Vito Corleone