ALEXANDRIA, Va. -
Specifically, NCUA said the $200 payment-a total of $5 million to be paid out of Continental's excess capital-amounts to a pre-merger dividend to Continental's members to "accomplish a partial equalization of shares." In a notice to Wings, NCUA said the FCU Act does not allow per capita dividend payments and that no other legal authority exists for a federal credit union to make this kind of payment.
"Additionally, the unilateral promise of a dividend by a continuing credit union in a proposed merger, without the approval of the merging credit union, is not permitted," NCUA said.
Tom Glatt, the well-known credit union consultant hired last August to head Continental FCU, was quick to embrace the NCUA's ruling, after weeks of asking for some kind of assistance form the chief credit union regulator.
"We appreciate the careful review and timely, decisive action our regulators have independently taken on this issue that is so important to both our credit union and our industry," said Glatt, in a prepared statement. "In affirming that a per capita payment offer is illegal, the NCUA has put a stop to this unprecedented, misleading and unlawful campaign that showed such callous disregard not only for Continental FCU, our board of directors and our members, but also for our entire credit union system, its principles and codes of conduct."
Wings Financial Vows To Press On
But representatives of Wings Financial, the $1.6-billion credit union chartered to serve members of Northwest Airlines, vowed to press on with its unprecedented takeover attempt that includes soliciting Continental FCU members to sign a petition urging a member vote on the merger.
John Wagner, spokesman for Wings Financial, said their member solicitations have been met with interest and enthusiasm and they plan to continue their campaign to woo the members.
The broader point they are making to members, he emphasized, is the benefits on rates and the availability of services through the larger branch network that would be available to Continental's 26,000 members if the merger is successful.
The NCUA ruling came a week after lawyers for Continental FCU sent Wings Financial a letter urging the larger credit union to "cease and desist" in its hostile takeover, the first in the history of credit unions. Continental has threatened to go to court to get a cease and desist order enforced if Wings Financial does not back off.
Wings Financial has been searching for new options to grow and expand since it lost the support of its corporate sponsor more than three years ago.
A major tiff with financially struggling Northwest Airlines forced the credit union to abandon some of its rent-free sites and even the Northwest brand, which the ailing airline sued to force the credit union to pay for.
Since then, Wings Financial has explored converting to a mutual savings bank and combining with other airline credit unions. Several friendly offers to Continental to merge have been rejected, the latest one on March 9, precipitating the unprecedented hostile takeover bid.
Post-Sept. 11 Fallout
Both credit unions have been hurt by the declining fortunes in the airline industry, as their chief sponsors have been in and out of bankruptcy and overall employment in the industry has declined by around 20% over the past decade.
Continental FCU has been particularly affected, losing almost 20% of its membership over the past five years as so-called TIP charters, for trade-wide, industry-wide and profession-wide, awarded to other air transportation credit unions have made its membership eligible to join several other credit unions, including Wings Financial, FAA First FCU and American Airlines FCU.
In addition, Chartway Federal Credit Union, a $1.2-billion credit union in Virginia Beach that has been serving Continental Airline employees for three decades, has expanded its presence in Continental Federal Credit Union's key markets.
Glatt, hired last August to succeed the retiring CEO Gary Swenson, has undertaken a major expansion program that includes additional ATM access through the CU 24 network (it already belongs to CO-OP Financial Services); additional branch access through Financial Service Centers Cooperative; full-service brokerage services through XCU Capital and the building of as many as three new branches.
The credit union's excess capital, said Glatt, is being targeted to support the expansion.
