The 'Canary' In The Credit Union Conversion Coal Mine
Somebody stop the presses, grab a bullhorn, and start shouting from the top of Mt. Credit Union. There was just a simple sentence-just a couple of words, really-uttered at a recent credit union meeting, yet it spoke volumes.
It is a sentence that needs to be heard by everyone-but none more so than those members whose credit unions have converted or are seeking to convert to a mutual bank charter.
Alan Theriault, a Maine-based consultant who says he's had a hand in every credit union-to-bank conversion since 1998-was asked the following during a presentation at CUES' CEO Network: "If there were no financial gain for board members and senior management, would there be any conversions?"
Theriault's response: "I don't know if I know the answer to that. I think conversions are driven by marketplace forces."
That the answer to that question was anything other than an unqualified "Yes!" is Exhibit A through Z that these charter conversions are a perversion of the democratic process that is fundamental to credit unions, and aren't being done to benefit any "institution."
There's an old saying in the journalism business that something can be true but not accurate, and that certainly seems to be the case here. We hereby present the George Orwell Trophy to those profiting from the credit union-to-bank conversions for telling the truth while ultimately lying. When consultants such as Mr. Theriault and the CEOs and boards of converting credit unions say such conversions are better for the members, they're telling the truth-they're just not saying which members.
When the former Rainier Pacific Credit Union went public as Rainier Pacific Financial Group, its shares shot up 70% on the first day of trading. As The Credit Union Journal's Ed Roberts reported Oct. 27, the directors and officers of the $715-million institution who subscribed to 980,000 shares at the initial $10 price saw a cool $7 million profit on day one. Joe Average Member, of course, had the same opportunity to buy-but how many of you really believe he also had the same opportunity to be on the inside and see the windfall coming? To paraphrase Mr. Orwell: All members are equal, but some members are more equal than others.
This must be what Mr. Theriault meant when he said the conversions are being "driven by marketplace forces."
Much to their credit, the two-dozen or so CEOs who were on hand for the session were clearly skeptics of the motives behind conversions, and cast an especially jaundiced eye toward the idea that abandoning the credit union charter is somehow better for all the members. What was commendable was that these very same CEOs who were largely dubious of Theriault's assertion of the benefits of such conversions were not just leaders of some of the largest credit unions in the country, but are in a position to become "marketplace forces" themselves if their credit union were ever to convert. (Commendable, too, was the lunchpail crowd wasn't forgotten-no easy task when you're meeting in a Ritz Carlton that's located on Vanderbilt Drive.)
What I couldn't help but recall as I sat listening to the debate was the five years I spent working as a reporter covering the banking industry and sitting in similar sessions with bank CEOs. Those who've always worked in credit unions probably don't realize just how foreign talk of working for the benefit of the consumer would sound in other industries. Believe me, if there's a presentation on "Benefiting The Customer" at a bank conference, it's given by the comic who's the after-lunch entertainment.
There was general agreement during the session-which ironically enough was on the same day Columbia CU voted to convert-that the conversion option should be left open to credit unions. At least two CEOs expressed strong frustrations that their credit unions were up against the cap on member business loans and that there didn't appear to be any way to release the steam. Yet both also said it was their hope to remain CUs.
But as Larry Sharp, president of Arrowhead Credit Union in California, observed, the real question of whether or not to convert should be settled by what's best for the member. "If the member isn't being benefited in the long run, then all other questions are moot," he said. "The real question is what value is the member getting. What value is there to the member in going to a mutual savings bank charter?"
That's not a question those looking to cash in on the conversion business appear to be pondering. As Theriault stated later, "There are real advantages to management to convert to stock form, including some real financial gains (for management). You can't miss it. I'm not saying that is all that drives the decision, but it's hard to avoid."
No, what's getting really hard to avoid is the real truth about these conversions. It isn't a charter that's being converted-it's insiders' tax brackets. And yet there's an even bigger issue, noted another CEO who was on hand and who made an observation so keen I fully intend to take credit for it in a few years: "It's our fault that Alan Theriault has a niche," he said. "He's a canary in a coal mine. We've done a poor job of telling our members what we are and that they belong to something bigger than they are. He's telling us we need to do a better job."
Frank J. Diekmann is editor of The Credit Union Journal. He can be reached at fdiekmann