Reader Opinions on CONVERSIONS
Communication Is Often Lacking
As a professional who has worked in the financial services industry for well over a decade, and having had the pleasure to work in several different capacities with banks, credit unions, and brokerage firms, I have always felt that each category of financial institution serves a key and important niche in the marketplace. Given that, I believe it is imperative for an organization to operate within the proper structure to provide the maximum benefit for all members or customers.
Whether the institution is a bank or a credit union is irrelevant. At its core, every financial organization needs to understand why it is in business and how it can serve the needs of its clients better than any other company. As one CEO of a bank that recently converted from a credit union told me, "Our brand has not changed. We are still the same institution."
As the issue particularly pertains to credit unions, the members are the owners so any conversion is clearly their choice. The leaders have a fiduciary duty to present the facts and benefits of the change if they truly see a need. However, in the end it is only the collective voice of the membership that matters.
That is what makes the Columbia conversion so disturbing. There have been a number of credit union-to-bank conversions around the nation in recent years that have been completed without complications. That would lead one to assume that in these cases the proper due diligence was done by the leadership, the details of which were presented to the membership, the members agreed, and everyone lived happily ever after. The fact that the Columbia conversion has been met with such resistance leads me to believe that either there isn't a clear benefit to the current member/owners or the benefit was not communicated properly. In these cases, the source of the problem usually stems from the latter.
If the board and management of a credit union determine that a conversion is in the best interest of the membership, hey have the responsibility to present that option. With that duty comes the need to create a clear understanding of the benefits among those they serve. This takes a high degree of communication-a level that, unfortunately, isn't always reached.
Kenneth C. Bator, President
Bator Training & Consulting, Inc.
What You Don't Know Can Hurt
Charter Conversions... what you don't know will hurt you!
If a credit union's membership, in good faith, votes willingly to give up their ownership interest in their credit union, who can argue against that? However, if most members also knew they could vote to liquidate their credit union and pocket a handsome return on their investment, they just might go that way instead.
Let's face the facts. With today's charters and CUSOs there's really not much a credit union can't do, if the leadership is so inclined. Conversion to a bank for business reasons translates directly in my mind as an easy way for management and the directors to make a quick buck ripping off the member's capital. How does the new bank's business model ever overcome the income tax burden it now has to pay? Why would you really want to pay taxes that you don't have to pay?
If the members are really lucky the new bank will let them buy back what they already own by selling them stock. Sell 'em back what they already own-doesn't that sound like a scam to you?
Gerd Henjes, President/CEO
Countryside FCU, Syracuse, N.Y.
Why Be Ashamed Of Choice?
I was interested by The Credit Union Journal's heading of "democracy in action or undermined," which leads me to believe that you're looking to further the polarization of the issue.
After seeing both sides as an employee of a Utah-based bank and a Utah credit union, I have come to the conclusion that if the law allows for credit unions to operate with either a federal or a state charter, why should anyone be ashamed of the choice made by their respective board?
Fiscal soundness should be the ultimate goal, and that function/measurement can be verified by someone on a federal level as easily as at the state level. When the issue becomes politicized, with deep-pocket campaigns that tie up valuable lawmaker time for a very specific interest, then everyone in the state suffers, except those lobbyists receiving the funds.
Lending money and selling financial services is not rocket science. If taxes are the key to lower cost products, then acknowledge the fact and the benefits it produces for consumers. If credit unions can provide the same services as banks to a target audience and do it for a cheaper price, the members are the beneficiaries.
It's the responsibility of the board of directors of the affected credit unions to manage the salaries paid to employees and mitigate the impression that "insiders" are profiting on a personal basis. I fail to see where any person at a credit union is "cashing in"; moreover, the statement is an insult when compensation packages are compared head to head between management at all levels of the two institutions.
I believe that the only interest that banks have is one of job preservation for their employees. The majority of business loans will always be made on a bank level.
The business loan niche served by credit unions is one often ignored or priced out of reach of many small business owners. Consumer banking will still be tied to convenience and quality of service. The consolidation of the banking industry vs. the local nature of the credit union industry provides viable options for consumers.
If state financial institution regulators can remain impartial, and have the foresight to accommodate both sides of the bank/credit union issue, can anyone really doubt with whom a not-for-profit, community-based lending institution would prefer to work? Calling someone in town for an opinion vs. a regional representative en route to Washington?
However, boards of directors also have a responsibility to oversee how effective PAC money is for its membership, and when the results are seen as ineffective and costly, they must make the decision to change charters.
I believe that the competition between both institutions will only serve to provide better access to cheaper financial service products for consumers living in states in which both institutions are permitted to grow and flourish.
Cohesiveness Has Been Lost
Why should this issue be any different than the one's we've seen lately? NCUA is screaming "safety and soundness," credit unions are "doing what's right for my credit union", and the trade groups (CUNA, leagues, NAFCU...) are yelling "stick together or die separately."
We've lost the cohesiveness that drove our industry for many years when the FOM evolution hit, and that's still a work in progress, with ramifications to follow! Will there be abuses? DUH! Will that be a viable means for some credit unions to continue to grow?? Ask those who are looking for secondary capital as we speak.
PCA triggers are limiting credit unions ability to serve it's members and it's our responsibility to review viable options.... even those "outside the box" of credit union land.
San Bernardino CU
San Bernardino, Calif.
When A Conversion Makes Sense
Certain trends in the credit union community are inexporably leading to a time when credit unions will have to pay income tax. When that occurs, will then existing credit unions be properly equipped to deal with it?
Will then existing credit unions be able to raise capital to fund a taxable-enterprise business plan? Will then existing credit unions be able to provide employee incentives that are customary in companies that operate for profit?
Remaining a credit union while awaiting the tax ax is an alternative frought with uncertainty. Should credit union members bear that uncertainty? If the answer is no, conversion to a thrift charter makes sense.