The Regulator's Concerns
The National Credit Union Administration laid out its concerns about the merger in a letter this week. The main issues:
* Will other credit unions suffer?
* Is industry's cooperative image tainted?
* Are managers and directors driven by personal gain?
* Should membership in combined entity be limited?
The credit union industry's biggest merger has been put on hold while federal regulators consider policy questions raised by the deal.
The National Credit Union Administration took the unusual step this week of writing the three West Coast merger partners.
The Nov. 28 letter, which the American Banker obtained under the Freedom of Information Act, details a series of questions the credit unions must answer before the government will sanction the merger.
The NCUA is clearly worried that the combination may hurt smaller credit unions or even damage the industry's reputation.
"Some observers suggest that larger mergers are consummated primarily for growth rather than service, and that such mergers result in increased competition among credit unions and adversely affect the ability of credit unions to operate as a cooperative movement," notes the letter.
The trio -- Patelco Credit Union in San Francisco; First Technology Federal Credit Union in Beaverton, Ore.; and Seattle Telco Federal Credit Union -- announced plans to merge in August.
If the merger is allowed, the new entity would become the nation's 10th-largest credit union with $1.4 billion in assets.
The merger -- and rumors that other large credit unions are plotting similar moves -- also has prompted the agency to start writing new merger guidelines, according to the letter.
NCUA Chairman Norman E. D'Amours declined to comment on the letter this week. But he said in an interview last month that the agency must carefully weigh the merger because it has far-ranging implications for the industry.
Sources said Mr. D'Amours has other concerns, including whether large mergers would hurt the industry's sterling image on Capitol Hill.
Also, some California credit unions have complained to the agency about Patelco's "predatory" competitive practices.
In his letter to the boards of the three credit unions, Mr. D'Amours raised the possibility of limiting membership in the new institution.
"NCUA staff is of the preliminary view that if the merger is approved, the credit union should be limited to adding new members only in the operational areas of the applicant credit unions' existing main and branch offices," the letter states.
The NCUA also is considering holding public hearings on the deal or opening up the merger application to public comment.
The three credit unions have a choice on how to proceed. they can ask for an expedited decision or they can wait until the agency has completed its new merger guidelines, which will take at least until April. A request for expedited action must be filed by Dec. 28.
Thomas Sargent, president of $255 million-asset First Technology, said Wednesday that the credit unions will go for the quick decision. He said the letter was a relief after three months of long silence from the NCUA.
"This is the letter we were waiting for -- what are the questions, what are the concerns," he said.
Mr. Sargent said the credit unions had addressed most of the regulator's concerns in their applications, but would provide the agency with more information.
While Mr. Sargent is optimistic the institutions can win approval once the agency's questions are answered, the NCUA letter leaves the door open to further scrutiny. "The board may ask additional questions that it deems appropriate in the future," according to the letter.