The man who says he's responsible for helping 27 credit unions convert to a mutual bank charter faced his critics here.
During the CUES CEO Network, Alan Theriault, a Maine-based consultant who specializes in and advocates such conversions, offered his perspective to a roomful of credit union CEOs who were civil, but some of whom disagreed strongly with how such conversions are brought about, whether members are fully informed, and who questioned the ethics of management and board members profiting from the conversions.
The session was held on the same day that Vancouver, Wash.-based Columbia Credit Union's members voted to convert to a bank charter.
Also participating in the discussion were Mary Martha Fortney, the acting president of NASCUS, and Bob Hoel, executive director of the Filene Research Institute, who moderated.
Four Options
During brief remarks prior to fielding questions (below), Theriault told the credit union executives that CUs looking to grow have four options:
1) The credit union community charter.
2) The mutual bank charter (or thrift charter or cooperative charter). "That is a charter that has ownership identical to credit union ownership in most cases. It has broader powers than the credit union charter. It does have some capital raising opportunity, but not a lot," he said.
3) The stock charter, in which an initial public offering follows the conversion to the mutual bank charter. "This allows the institution to become a more significant player in the community," said Theriault.
4) The mutual holding company charter. "This is a hybrid; it's part mutual, where the members remain in control of the institution. And it's part stock, allowing the members to invest in the institution and fund it's growth. This gives a credit union the opportunity to get the best of both worlds. You can put the tools in place to be an employee-owned cooperative. This has a very strong community acceptance. You don't have to worry about takeovers, yet this allows you to sell up to 49% of the institution. That is worth taking a look at."
Under the mutual holding company (MHC) charter, an MHC is essentially a parent company that issues no stock. Beneath the MHC is a stock-issuing company, in which all the stock is owned by the MHC. Below the stock-issuing company is the bank. The depositors of the bank elect the directors of the MHC. "Under this structure you can hold several credit unions," said Theriault. "If you need capital, you can go to the members and sell 49% of the institution. I think this has some merits; you combine mutual control with employee ownership, and bring in fresh capital. You can leverage the growth of the institution and become more competitive."
For her part, Fortney said her view is that the "credit union charter is not a dinosaur. I am convinced we stand at the cliff of achieving some great things. Member ownership is unique. Each member has an equal vote. Each member has an equal ownership share, regardless of what is on deposit. That's why I think credit unions have such strong support."
One credit union CEO noted that his credit union has considered making the move to a mutual charter as the result of bumping up against the business loan cap.
"We've not made a choice to convert," he said. "But what seems odd to me is that our state association people get all crazy. They want to stop the conversation right there. I think every board ought to have the option. I think it's wrong to stop the option. We are having real problems in our credit union with hitting the cap on member business loans. We are participating them out. We want to stay a credit union, but it's a real problem for us there. I think as credit unions we need to be focusing on ways to resolve these problems. There are some great opportunities and models out there, and our trade associations need to be looking at creating better organizational structures for credit unions."
But another CEO responded by saying, "I don't disagree about keeping the option open. I think it has to be fair to the member and they have to understand what happens when the process takes place.
If you say to them that you promise them something (not to convert to a bank) in order to get their vote, I think you need to be held to the promise.
Added Robert Harvey, president of Seattle Metropolitan Credit Union, commenting on the recent conversion by Rainier Pacific Credit Union to become Rainier Pacific Bank, "I just don't believe what Washington (State) really needed was another bank. The banking community is sound and solid. It doesn't need another $300-million bank. This isn't about management keeping its job, either. I don't believe credit union management is at risk of losing their job. It seems to be working for 10,000 other people."
The Filene Institute's Hoel noted that he attended the annual meeting of a local thrift in Madison, Wis., as a customer, and "I was the only one to show up. And they held up the meeting to check me out. They had reasons to keep the meeting closed," he said, noting the mortgage portfolio was experiencing losses.
"We expect that most mutual thrifts will convert to some form of stock ownership," said Theriault. "Less than 10% of the assets of the thrift industry are in mutual thrifts. It points out there are real advantages to management to convert to stock form, including some real financial gains (for management). You can't miss it. I'm not saying that is all that drives the decision, but it's hard to avoid."
Larry Sharp, president of Arrowhead Credit Union in California, observed that the real question of whether or not to convert should be settled by what's best for the member.
"If the member isn't being benefited in the long run, then all other questions are moot," he said. "The real question is what value is the member getting. What value is there to the member in going to a mutual savings bank charter?"
Other Questions Raised
The issue of charters raises a number of questions, according to Hoel.
"To me, the interesting decision for the credit union movement is: how vigorously are they going to pursue changes to the charter," he observed. "I think we have a real big issue, do we wish to improve the charter and, if so, where are we going to put our money and our efforts. I think we have real problems with PCA. We have higher requirements than banks, yet we have fewer problems. I do think if the charter stays static, that's a problem for all of us."
Theriault suggested credit unions may indeed need help from Congress, but it could be a case of be careful what you ask for. "I think that a lot of what credit unions need are going to require a legislative solution," he said. "And when you get to the Senate Banking Committee, they're going to say we already gave you that solution. You can do those things by converting to a mutual. If you want to go beyond where we've legislatively given you, you already have the power."
