NCUA Proposal Seen Chilling CU Mergers
ALEXANDRIA, Va. – Credit union executives are worried an accounting proposal by NCUA that would require credit unions deduct “bargain purchase gain” in mergers of troubled credit unions will have the opposite of its desired effect and instead discourage such credit union combinations.
“We believe the proposed ‘technical corrections’ will have a chilling effect on potential future mergers,” Wade Painter, chief financial officer for California’s Redwood CU, told NCUA in a comment letter on the proposal. “In the very least, there will likely be fewer healthy credit unions willing to take on a problem credit union.”
The NCUA proposal would amend provisions of the 2006 law that redefined credit union net worth so that any “bargain purchase gain,” such as a discount from a target credit union’s book value in the merger of a troubled credit union, would be deducted from the target credit union’s net worth prior to completion of the merger.
The NCUA proposal will implement changes to definitions of credit union net worth approved by Congress last year.
Credit union executives are telling NCUA this would reduce the net worth of healthy credit unions following mergers with troubled institutions.
Francisco Nebot, chief financial officer for California’s SchoolsFirst FCU, said he is worried the accounting proposals will deter such mergers. “There has been no showing that following the existing regulations has created any safety and soundness concerns for the continuing institution in the case of previous mergers,” he wrote to NCUA. “Without such a showing, there is no rational basis for this component of the rulemaking.”
“This could deter merger activity and seems unfair,” Beverly Rutherford, vice president of compliance for Virginia CU, told NCUA.
“In the wake of the current economic environment many credit unions could not absorb the impact associated with the mergers this change in [regulation] would effect,” wrote Michelle Tygart, staff attorney for Denver’s Public Service CU.