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

 

 

Credit Unions: The Godfather Mergers -Part VII

  

   "I know it’s wrong, but I don’t care.” - M. Corleone **

 "Where can you find an acquiring credit union, which will take another one on with no capital?"

 

Forget those ideals of cooperative principles, "people helping people", local member-ownership and control; our troll is obviously clueless about the core economic worth of a credit union.  Unfortunately, credit union boards also appear to be deeply in the dark. At least one hopes it's ignorance, not cupidity. 

 

Everyone selling a business seeks to determine "what it is worth", a fair price, a fair value. An owner wants best value, folks like the IRS want their share too.

 

Valuation of a credit union as a business is straightforward, since the assets and liabilities are pretty uniform (loans, investments, some buildings and equipment, member deposits, and reserves). 

 

Credit unions are also heavily scrutinized by both regulators and CPAs to assure that financial statements reflect a fair representation of the approximate value of each holding. Both loans and investments are regularly adjusted to reflect potential losses in value. If everyone is doing their job, when looking at a credit union balance sheet; for the most part, "what you see is what you get" in terms of "book value" of the institution.  

 

The formula for the "book value" of SAFE CU - if the Board were selling it rather than giving it away - is Assets (loans, investments, buildings, etc) minus Liabilities (member deposits, CDs, IRAs, etc) equals Equity (also referred to as book value, net worth, reserves, or capital).  A-L=E!

 

For SAFE that would be (A) $4.4 billion in loans/investments minus (L) $4 billion in member deposits = (E) $400 million in equity/reserves which is owned by SAFE members - and available for distribution (@%1,639 per member).

 

😎 ' Course that only applies if the SAFE CU Board chose to sell the credit union, not give the members' equity/reserves away. 

 Last time I checked, credit unions were classified as not-for-profits, not charities... $400 million is a large gift of other people's money!