Consultant Responses To CU CEO Questions About Conversions
NAPLES, Fla.-During a recent CUES meeting, CU CEOs had these questions about charter conversions for consultant Alan Theriault:
Q: Who owns the capital?
Theriault: The members have a liquidation right to the capital. If it were liquidated, they would get a distribution on a pro rata basis. The ownership if fictional. If you can't sell it, you don't own it.
Q: If there were no financial gain for board members and senior management, would there be any conversions?
Theriault: I don't know if I know the answer to that. I think conversions are driven by marketplace forces. They recognize that survival may be a critical consideration in doing the conversion.
Q: If prior to a conversion a credit union ran down its capital, would there still be as many considering converting?
Theriault: I don't know. Only two credit unions have liquidated prior to merging with another institution.
Q: If there is a published disclosure to the membership, does the plan have a time limit, and can you adjust it later?
Theirault: I've been involved in a lot of disclosure language. There is always this debate that you can overdisclose things. If it's too weighty, people won't read it. Keep in mind that NCUA reviews all these documents, and they can request changes. For (NCUA Chairman) Dennis Dollar to say these disclosures aren't sufficient, he's forgetting they've had a chance to weigh in on the disclosure.
After you convert, you are dealing with a new regulator. With the SEC, you have to have six months go by before you start making changes to your plan.
Q: So if a CU says in its disclosure that it's not going to convert to a stock company, that really doesn't mean squat?
Theriault: It's conceivable, but it's not happened.
Q: Do you provide advice on converting to stock, and shouldn't you disclose that?
Theriault: That depends on the institution. Before we get into the specifics of compensation issues, you have to get into the feasibility of the charter conversion first. I look at the charters first.
Q: As credit unions work to overcome in Congress limitations on PCA, FOM and business loans, do you think we'll open ourselves to have the one singular advantage-the tax advantage-removed?
Theriault: Congress is about compromise. HR 1151 was all about compromise. Credit unions got some of what they wanted, but they also put on handcuffs. You see pressure from NCUA and CUNA to make it harder to convert to a bank charter. You could find the ABA and NAFCU and CUNA in agreement on one thing-to keep credit union a credit union, as long as it's taxed. I think that is a real risk.
Q: What are the benefits to the member of converting?
Theriault: I think the jury is still out, to be honest, on the benefits to the member. You do have to deal with CRA and taxation and the learning curve that goes with this. It takes time to execute your business plan.