The April 5, 2004 editor column once again made it clear that Co-Publisher/Editor Frank J. Diekmann of The Credit Union Journal personally opposes any credit union's conversion to the bank charter.
Thus, newsroom staffers, following his lead, are working overtime to promote a tilted Credit Union Journal message: conversions are about greed. But, where's the objectivity one should expect from reporters?
In the editor's view, democracy shines when a handful of activists manipulate it to derail a conversion, and in the editors words rescue the credit union from "having it nearly sold out from under them," a disgraceful eschewing of the truth for the sake of sensationalism.
The editor praises the campaign of a handful of "social activists," who likely, while on recess from a Pacific Green Party campaign, spotted owl rescue, or a Ralph Nader rally, make sport out of petitioning, picketing, and generating chaos.
Yet, somehow the same democratic principles are invalid when a majority of members vote in favor of conversion, as they have in every instance. As journalism, it's irresponsible.
Like the former NCUA chairman, whose agency provided de facto support and cover for the activists, I suppose the editor thinks he's being clever by using extreme, inflammatory language. Maybe these two "Elmer Gantry" clones think they are just pandering to an audience of believers. By cranking up the rhetoric they hope to, like a stereotypical southern Baptist minister, garner call-response shouts from the congregation. More likely, it's about increasing the franchise value of his tabloid in the case of the editor; and certainly, the former NCUA chairman, after years of sacrifice at public servant wages, was eyeing another cheerleader slot, perhaps even as a trade association CEO at 10 times a NCUA director's salary. Translation: personal gain.
An Assault Upon Individuals
Lacking the evidence to attack the business purpose and logic of a conversion, The Credit Union Journal assaults the individuals involved and, in the editorial, pats itself on the back for what amounts to amateurish, one-sided investigative reporting.
Also, writing about recent conversion news with a consistent theme of warped cynicism, the editor said, "[the credit union] was only the latest in a sad series of conversions to the bank charter that have had nothing to do with what was good for the institution and everything to do with what was good for a handful of insiders who have been turning huge personal profits by selling off equity that belongs to everyone else."
The statement is wrong on all counts. It is simply incorrect to suggest that credit union boards are not working in the best interest of their members in these conversions.
Compensation Of Little Importance
All the boards that have worked with CU Financial Services have only taken the conversion step after reviewing the powerful business case, member benefits, and community benefits for the charter change, and explored all reasonable options as a credit union. Compensation issues, although a tangential part of the process, were of little importance and in most cases not even considered relevant.
Moreover, members and shareholders must vote each step of the way during the conversion process from credit union to mutual and from mutual to mutual holding company (and a few that later executed a member-approved minority stock offering or even conversions to full stock). Management compensation plan details are public information and also must be approved by shareholders.
There's nothing secretive about the process, as the editor would have you believe by claiming a certain credit union tried to "slip one past the owners."
As far as "selling off equity that belongs to everyone else," let's set the record straight with three incontrovertible facts: (1) the subject credit union stated it had no intention to raise capital through a share issue; (2) in the event of a stock offering in the future, which must be voted on by depositors, members have a priority right to purchase shares, and the same opportunity as management and the board, and both assume the same risk of market value fluctuation; and (3) the original member equity is preserved in a liquidation account in the unlikely event that the organization is ever wound up.
Despite the credit union income tax advantage, it is an indisputable fact that a depository institution can do more for its members and its community, can offer a greater volume of financial products and services, and can open more branches if it is has a bank charter, given the lower capital requirements and access to capital.
Credit union studies reveal a critical need for capital among the fastest-growing, most successful credit unions, a problem which can only be solved after a conversion.
Moreover, the conversion process, and the mutual capital-raising process, has survived decades of review and scrutiny by hundreds of board members and depositors, government officials, legal experts, the court system, and the United States Congress. Credit union conversions to a bank charter were again confirmed legal in 1998 as part of HR 1151, and are viewed by many members of Congress as the solution to credit union capital and product restrictions imposed as part of HR 1151.
Credit union leaders proclaim that HR 1151 ratified the legality and ethics of a credit union's tax exemption; if so, the same must apply to the bank conversion process.
Not An Epiphany At All
As for the editor's epiphany in the final paragraph, according to the research I've seen over the years, the reality is that democratic-ownership powers are valued by an inconsequential few and are almost meaningless as a differentiator for credit unions.
The vast majority of consumers want quality products at fair prices in convenient locations. Members rate credit unions highly because of attentive personal service, not the right to exercise their franchise at an annual or special membership meeting.
I have no argument with the editor's take on branding-he's right about it being experiential. But there is no evidence the "experience" on which he hangs his hat is a defining one for members.
In conclusion, the editor implies that a conversion amounts to "just another piggy bank to be broken open." Based on the press coverage in the past several months, including almost every issue of this publication, you'd think mutual bank conversions were happening in the hundreds.
Yet, of the more than 9,300 credit unions, just 26 have converted to the bank charter or merged with like-minded institutions. As more credit unions choose this path, the "piggy bank" that gets broken belongs not to members but to credit union trade publications, credit union regulators, credit union trade associations, and others whose revenues depend on maintaining the credit union status quo.
Alan Theriault is president of CU Financial Services, Portland, Maine.
