EL SEGUNDO, CALIF. -
The offer by the $1.6-billion credit union giant Wings "is not in the best interests of our members," said Allan Cooper, chairman of the Continental board, "and clearly does not bring any compelling value to our membership."
Representatives of Wings, once known as Northwest (Airlines) Employees FCU, said they expected the latest rebuke and will continue to press their unprecedented merger attempt, which includes a direct appeal to Continental members and a $200-per-member inducement. Wings representatives were also soliciting Continental members outside the credit union's branches at Los Angeles and Newark international airports, in hopes of organizing a petition drive to force a member vote on the takeover.
"We're disappointed, but not particularly surprised by the action they took," said Wings spokesman John Wagner, of the Continental's board 7-0 vote. "We've yet to have a meaningful discussion of our proposal."
Tom Glatt, the well-known credit union consultant who took over the pilot's seat at Continental last August, said he and the board have a comprehensive plan to turn-around the airline employees credit union, which has had declining financial performance in recent years. The plans call for expansion of products and services and branches for the $176-million credit union's 26,000 members.
Reports submitted to NCUA show Continental FCU had declines last year in assets (4%), shares (6%), loans (1%) and net income (30%), and membership has declined more than 20% over the past five years.
Ironically, it is the credit union's unusually high capital, 17%, a $30 million cache-which Glatt and the Continental board plan to use to finance the turn-around-that has attracted the unwanted suitor. In a typical credit union merger, the acquiring credit union uses the target credit union's capital to build up its own net worth. In this case, Wings Financial will use some $5 million of Continental's capital to pay out the $200 promised to each Continental member.
"A lot of credit unions are sitting on a lot of capital," said Bob Hoel, research fellow and former director of the Filene Research Institute, the credit union think tank. "Continental FCU is very over-capitalized at 16.8% net capital; their peers have 11% capital."
"That's a credit union that is loaded with capital and makes it a tempting takeover target," said Hoel. "Credit unions that have built up a lot of capital are vulnerable to takeover. This could come from banks. Now it's coming from credit unions."
Glatt said the capital is being used to expand services and products to make the credit union a more attractive option to potential members. "We want to give it back to members in ways that will keep on growing," said Glatt. "We have plans for that net worth."
Those plans included last August's roll-out of full stock brokerage services provided by XCU Capital; the addition of more than 4,000 outlets with the recent joining of Financial Service Centers Cooperative: and the availability of 20,000 new ATMs offered by the CU24 network, which went live last week, to add to the 25,000 ATMs available through CO-OP Financial Services.
Continental also plans to open an additional branch at the airport in Houston, and is negotiating to put a branch in the Philadelphia airport later this year.
"Our view is we have no reason to merge. That would dilute the independent voice that our members have now," said Glatt, who insisted that numerous surveys have indicated members feel the same way.
Wings Financial, itself, was the target of its own hostilities just three years ago when its financially ailing airline sponsor evicted it from it main branches and sued to force it to shed the Northwest name, adding millions of dollars to annual operating expenses at its 17 offices around the country. The fight with its sponsor prompted the Wings board to review a number of options, including conversion to mutual savings bank. The credit union rejected that option-officials insist it was never seriously considered-but the flirtation caused Wings CEO Paul Parish to resign from the CUNA Board after CUNA began to prominently oppose credit unions conversion to banks. Instead of the bank option, Wings became one of the first credit unions to adopt a TIP charter (for tradewide, industrywide and professionwide) allowing it to serve the entire air transportation industry nationwide. Both Continental and American Airlines FCU also adopted air transport TIPs, as well as at least two other credit unions.
