Merging Into Traffic

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In the successful merger of two credit unions there are a huge number of operational, political, cultural and philosophical issues that must be resolved. Any one of them can derail even the best intentions.

Despite the hazards and potential pitfalls, credit union mergers are increasingly viewed as integral to a successful growth and expanded service delivery strategy. The larger the credit union, the more likely it is that the board of directors and management have candidly discussed mergers during their strategic planning session. Some believe that a significant consolidation of the credit union industry is essential if credit unions are to retain their relevance and remain competitive.

Not everyone in the credit union community agrees that mergers are desirable for their credit union or for the industry. There are many CEOs and board members, especially from the thousands of smaller credit unions, who are fiercely independent and unwilling to seriously consider merging their credit union with a larger one. Others believe that there is something inherently better about having many small credit unions rather than a smaller number of large credit unions. Although these sentiments are understandable, they represent poor strategic thinking. Most credit union forecasters see the merger trend among credit unions continuing into the foreseeable future. Even if a credit union decides that merger is not its cup of tea, prudent stewardship on behalf of its membership demands that it should at least assess the possibilities a merger represents.

Consider the example made by a nearly $200-million credit union that has formalized its merger strategy in a written statement which reads, "We will participate, as appropriate, in mergers or other strategic partnerships that are beneficial not only to our organization, but also to the growth of the cooperative movement. We will be prepared and proactive in positioning ourselves to participate in merger or consolidation within the industry."

The CEO of a $500-million credit union states, "Narrowing interest margins and increased competition from traditional and non-traditional financial service providers are driving mergers as a growth strategy. This enables credit unions to gain scale more quickly and better respond to the financial needs of members. Additionally, credit unions are in a cycle of consolidation. By effecting voluntary mergers rather than regulatory mergers, credit unions will proactively build new efficiencies and take control of their future."

Coming from a different perspective, a CEO from a $400-million credit union also shares his special insight about mergers. "We have a community charter that covers a five-county area. Within that area, there are over a dozen credit unions. If a merger opportunity surfaced, we would pursue that opportunity as aggressively as anyone. However, we have nothing stated in our strategic plan to aggressively pursue mergers, as the potential for growth would not be that dramatic as we already serve the areas served by these credit unions. We focus more on helping these credit unions than trying to take them over, as we would rather people be served by a credit union than by a for-profit bank. Plus, we are not obsessed with growth for growth's sake. We are obsessed with providing outstanding service, quality products and services at the best pricing in the area, and convenience for the members via branches, ATMs and Internet services."

How would your credit union's management team and board of directors respond to the notion of merger as a growth strategy? You may be surprised by their opinions. Would they agree or disagree with the following strategic statements?

* As part of our growth strategy, our credit union should actively solicit other same-size or smaller credit unions to merge into our credit union.

* In considering any merger situation, the most important factor is whether the merger ultimately benefits our members.

* Although it may involve the loss of governance and policy control, our credit union should actively seek a larger credit union to merge with in order to rapidly provide more financial products and services to members.

* We should seek a merger with a neighboring CU even if we have to relinquish seats on the merged credit union's board and have our professional staff reassigned to different roles than they currently have.

* Everything is going along very well and we do not need to change our growth strategy much at all.

Obviously, mergers are not the only method for growing a credit union. Assertive marketing, adding small employee groups, converting to a community charter, increasing branch locations, and leveraging technology are all proven growth tactics-and they are much more socially acceptable in some CU circles than growth through mergers.

Despite the other choices and regardless of asset size, every credit union's official strategic plan should include a proactive merger strategy. The strategy should address the possibility of being the "merging credit union" as well as being the politically easier-to-swallow "surviving credit union." Ignoring the option does not make it go away.

Classic comic strip character and Okefenokee Swamp's most thoughtful citizen, Pogo Possum, could have been thinking about merger-adverse credit union CEOs and volunteers when he made his famous statement, "We have met the enemy and he is us."

A 29-year credit union community veteran, Marvin Umholtz is President & CEO of Umholtz Consulting Services located in Castle Rock, Colorado. He can be reached at or 303 601 9065.

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