NCUA Is Crafting A Rule To Prevent Hostile Takeovers From Taking Hold

HONOLULU - NCUA is putting together a proposed rule that would could prevent attempted hostile takeovers of credit unions, such as the one that lit up the credit union movement in controversy this spring.

"This is something NCUA is looking at; we have an open mind about it," said NCUA General Counsel Bob Fenner, during NAFCU's annual convention.

While NCUA has no formal rules governing non-friendly takeovers, it was the agency's action that ultimately killed the controversial bid by Wings Financial FCU to take over Continental FCU. It was NCUA's ruling that Wings' $200-per-member offer to support the takeover ran afoul of existing agency rules which bar the pre-merger promise of a dividend.

"In the end, we concluded that (the cash offer) was in the form of a merger dividend," said Fenner.

The resulting elimination of the cash offer forced the $1.6-billion Wings Financial FCU to abandon its hostile bid for the much smaller, $180-million Continental FCU, which enraged a credit union movement that prides itself on cooperation.

Throughout the two-month hostile takeover attempt, Wings actively solicited members of Continental FCU with a website touting the services offered by the larger credit unions, as well as the cash offer, and direct communications through fliers and personal contact at Continental branches and terminals at airports throughout the country.

As a result of the controversy, NCUA is exploring whether they should regulate in this area and if so, how, according to Fenner.

Among the possibilities being discussed are the regulation of direct communications from management of one credit union to members of another, or of communications to members of a credit union by an outside entity, like a bank that may want to acquire a credit union.

The process is still in the early stages, but Fenner suggested that interested credit union executives and directors contact the agency with recommendations.

"It's too early for me to speculate (on a proposal)," he said. "It's up to the NCUA Board."

"We'll be making a recommendation and alternatives to our Board in the coming months," he added.

Even without a new rule, Fenner emphasized that NCUA still has authority to bar a hostile takeover. For one thing, he noted, no merger can take place without the approval of both boards of directors and by NCUA. "We do have broad discretion in this area," he said.