A Year Remarkable For A Missing Headline Or Two

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As this issue of Credit Union Journal is the last to be published in January, let's close out by acknowledging a story from 2010 that hasn't engendered the same amount of discussion as the weather, but which will be of note long after the snow and ice have melted and the related cursing has been tempered.

No credit union converted to a bank charter.

Your first reaction may be that, given the year the banking industry had in 2010, that's about the equivalent of pointing out that no Republican looking at a reelection campaign stood up in Congress and proudly announced he was switching his party affiliation to the Dems. But it's not so clear cut.

Charter conversions take time, meaning any conversion that might have occurred in 2010 would have had to have gotten rolling in 2009. And 2009, as you may painfully recall, was when credit unions first began learning that even though their own corporate CU may have dodged the CMO and MBS bullets, they were getting shot anyway with those "special assessments" that sent most CEOs back to their dictionaries to see if all their lives they hadn't been misunderstanding the definition of "special."

Not For A Lack of Trying

It certainly wasn't for a lack of trying by some that the news pages of Credit Union Journal weren't filled with more stories of conversions. The charter-conversion profiteers have been sending Thank You notes to NCUA on a near monthly basis the past two years as they worked the phones and wore out the Send buttons with messages about how unfair it is that the assessments are wiping out earnings and decimating balance sheets even at well-managed institutions in states with healthy corporates, and that given that lack of access to capital, the future is as dark as the "Twilight" saga.

And they were right about that. It was (and is) unfair, but you already know what your mother told you about life, and that's life inside a cooperative industry. Funny, but the salvation promised in those phone calls and e-mails doesn't seem like paradise to the more than 250 banks, mostly community-based institutions very similar to CUs, that got their own tombstones over the past two years. Among them was Rainier Pacific Bank, the former Rainier Pacific Credit Union that converted in 2001, and which has since been shuttered, though none of that matters to the consultants and insiders who took their cash while there was cash to be had.

An analysis performed by CUNA showed that eight credit unions in total converted to bank charters in 2001, and that there have been one or two per year since then (with the exception of 2005 and 2010). There could have been another name on the list, but in Maine, after the board of KV Federal Credit Union voted unanimously to merge with Kennebec Savings Bank (a mutual) and then to convert to a bank, outraged members voted the merger plan down.

Imagine if members had listened to the board, and now in the midst of a long and gloomy winter they have to deal with the prospects of being a bank that has to pay taxes and write more checks to prop up an FDIC that makes the NCUSIF look almost rosy cheeked. As CUNA economist Mike Schenk said in comments about conversions published by the trade association recently, "Convincing members that for-profit banking provides a better model in the wake of the bank-induced calamity we just lived through would not only be very difficult, but it has a high probability of being a career killer."

Still, it would not be surprising if some credit union doesn't announce in 2011 it is pursuing a charter conversion. For all the sales pitches from the charter conversion clan about the benefits of such a move, for some reason all the planning related to such conversions is always done in secret, and then sprung on the membership. What isn't secret is these past two years have been very difficult for credit unions, and when times are tough it's always easier to sell a vision of a better future just over the hill. Some board may have bought it.

But those same boards are also now required to demonstrate basic financial literacy skills. And none of the charter converters have ever been able to show how the move benefits members' finances.

• Speaking of trend lines, CUNA Mutual recently projected in its most recent Trends Report that, given that 2011 will be a similar operating environment to 2009 and 2010, it expects industry consolidation to remain below trend, but added it believes "consolidation will rapidly accelerate in 2012 and 2013." That same report forecasts that credit unions picked up nearly one-million new members in 2010, pushing total membership to 93-million Americans, and that another one-million are likely to join in 2011, with large CUs dominating the membership gains, while a "significant percentage of small CUs will see a reduction in the number of members."

• A quick point of clarification. In last week's column I wrote that Servus Credit Union was about to be involved in a merger with two other Canadian CUs. In fact, its merger with Common Wealth CU and Community Savings took place in 2008. I was thinking of a propsosed merger in Saskatchewan between Synergy CU, Innovation CU and Conexus CU, which members nixed last week. It was my mistake, although I am blaming it at least in part on the metric system.

Frank J. Diekmann can be reached at fdiekmann@cujournal.com

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