Members Question Board On Motives Behind Conversion Attempt
A special meeting for members of Lake Michigan Credit Union last week, culminating the month-long vote to convert the $1.1-billion CU to a mutual savings bank, did little to sway votes from many in attendance, some who openly expressed concerns about the motive behind the plan.
Members questioned the board on what the benefits of such a conversion are, whether the board would resign if the conversion is unsuccessful, and why the process has been so secretive, with the credit union declining to speak with the media. Indeed, a Credit Union Journal reporter was escorted out of the meeting after taking a photograph.
"In the disclosure, I have yet to see how I will benefit," said one member.
"I think it's a railroad job," offered another. "Is this based on what's good for the majority?"
"What's to prevent us from growing larger and not being sold off in the future?" fired a third.
If the conversion is approved, the credit union expects to commence a public offering of stock to raise as much as $70 million to finance expansion plans. LMCU is being advised in the conversion process by attorney Alan Therriault, who has been involved in other conversion attempts.
About 160 people turned out for the meeting called by LMCU officials in compliance with state regulations to allow members to ask questions before the close of the election. It was held at Forest Hills Public Schools Fine Arts Center in Grand Rapids. Attendees were asked to sign in, and those who identified themselves as members were given an opportunity to vote prior to the meeting if they hadn't already done so. Others got a final opportunity to cast their ballots during a 10-minute period that followed public comments.
Members were given from Nov. 8 until Dec. 8 to cast their ballots on the conversion. To pass, two-thirds of LMCU members who cast ballots must support the conversion.
LMCU officials earlier told The Credit Union Journal that 37,000 ballots of more than 80,000 ballots directly mailed to members had been cast. The counting was to commence at the close of the special meeting. A third-party CPA firm, Cindrich, Mahalak & Co., with offices in St. Clair Shores and Kentwood, Mich., was expected to take seven days to tally the votes. Representatives from NCUA and Michigan's Office of Financial and Insurance Services were expected to monitor the count.
Decision Expected This Week
LMCU's legal representative, Attorney Jim Fleischer, of Silver Friedman and Taft in Washington D.C., told the crowd it would be at least a week before the final tally would be announced by way of the credit union's website, www.lmcu.org, and in a press release to the Grand Rapids Press. The credit union has declined comment to the credit union trade press since the conversion process began.
Fleischer, LMCU CEO Sandy Jelinski, and Board Chair Gretchen Tellman addressed member questions. Of about 26 people who spoke during the hour and a half session, three said they favored the change.
Rick Meyer, 34-year member and certified financial planner was among them. "There is no rewind," he said, explaining that several of his clients who are LMCU members said they wished their CU was the same small institution that attracted them years ago. His response: "This is where we're at. And there's a real strain on capital."
Meyer said he supported the stance that without the conversion, the CU would be forced to lower interest rates on deposits and increase interest rates on loans.
Another long-time member said she has trusted the board up to this point and will continue to do so. "They've made good decisions. Why would we be questioning those motives now?"
Jelinski told the audience that members could expect the same services and the same rates of deposits they have today should the conversion take place.
'Not Pleased' With Ownership Changes
She said the conversion proposal was driven by demand from the community for the CUs services and is essential to continued growth.
Jelinski said that as a CU, the institution can't continue to grow without sacrificing member interest rates. As a mutual thrift, she said, it would have more capital-raising options without sacrificing services or member ownership.
But several members objected to that point, noting that under the conversion plan, they would retain only 51% ownership, while stockholders would get 49%.
"Ownership from 100% to 51% is a significant loss," said one long-time member. "That's a shift that I am not very pleased with."
Others said they didn't like the proposed structure that gives the majority of the votes to the wealthiest people. If the conversion is approved, the one-member, one-vote structure in place as a credit union would be replaced by one vote per every $100 on deposit.
"If you have $500 on deposit, you get five votes," Jelinski acknowledged, adding that the bank model includes caps that would make it "extraordinarily unlikely that a group (of wealthy members) could control votes."
Some of the tactics used by Lake Michigan Credit Union in its attempt to convert charters drew criticism even before the membership meeting was held. Seeking to lure votes, the credit union parked a new Cadillac outside its offices to highlight the prize that was being offered in a sweepstakes for members who cast votes. In addition to the three-year lease on the Cadillac, it also offered cash prizes.
The Michigan League Weighs In
The prizes, along with concerns about potentially unbalanced disclosures, triggered a mass media campaign in local newspapers by the Michigan league, and got the attention of Michigan Gov. Jennifer Granholm. Her spokeswoman, Liz Boyd, said Granholm would recommend changes to the process in the future.
In earlier news articles, Jelinski reportedly said that LMCU officials revised their disclosures many times to meet regulators' approval, and in fact, exceeded the amount of information required by law.
Jelinski told the audience that the campaign for the conversion cost credit union members $700,000-$500,000 for postage and mailing and $200,000 for "other costs"-spending that was approved by board members.
One longtime member, responded, "In view of the costs, is the present board prepared to resign if this effort fails?" Several in the audience applauded.
By the same token, Jelinski's simple "no" response also triggered some applause.
On Nov. 7, a day before voting was to start, the MCUL placed its first of three full-page ads to run during the voting period in the Grand Rapids Press. MCUL President Dave Adams said the ads along with a special website, www.memberinform.org, were aimed at helping members make "more informed votes."
At least one member criticized the panel for not granting interviews to the media during the process. "I question the secrecy in which this charter change was conducted," he said. "No one allowed the news media to talk to them in an open forum."
CU Journal Reporter Escorted From Meeting
The credit union's attorney, Fleischer, claimed that government regulations prevented officials from disclosing certain information so he advised CU officials not to grant media interviews.
"As counsel for the institution, I will take responsibility for that," he said. "They are limited only to say what's approved by the regulators."
LMCU officials have repeatedly ignored CU Journal requests for interviews.
While the news media was admitted to the special meeting, cameras apparently were not allowed. An empty roll of film from the camera of a CU Journal photographer was confiscated after someone identifying himself as an LMCU employee saw her holding a camera. The journalist was then escorted out of the building.
Several members leaving the meeting said they were frustrated by the lack of responses by CU officials to member questions.
"They answered only what they wanted to," said member Sandi Mojzuk, of Rockford. "If this goes through, I will be done with them."
Mujzuk, who voted against the charter change, earlier asked the panel whether her "$100,000 plus in CDs" would be subject to withdrawal penalties as a "new institution that I don't want to belong to."
Jelinski replied: "Same rules apply."
To that, Mojzuk responded, "It sucks, doesn't it?"