Let’s not let another angel (in Maine) lose her wings

At EverythingCU’s open house last Thursday, we had the pleasure of a visit from Christian Mullins. I got to meet Christian when he attended the inaugural BarCampBank NewEngland. Christian is one of the most well-versed people I know when it comes to credit unions and mergers. He has spent significant time in Mad-town, and now lives just outside of Portland, Maine. By virtue of his knowledge and location, he has a front row seat to the proceedings of KV FCU trying to merge itself into a local bank, Kennebec Savings Bank in Augusta (ME). I haven’t heard much attention so far in the CU blogosphere about this issue, so I recommend that you take a peek at Christian’s latest CU Potential blog post.

Should we get fired up every time a CU merges out of existence? (Even if into another CU?) Yes. Because the entire POINT of a credit union is to bring YOUR money, and YOUR financial institution under YOUR local control. Every merger is a step away from the goal. Every time a credit union is merged out of existence, an angel loses her wings.

That’s my take. What’s yours?

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14 Responses to “Let’s not let another angel (in Maine) lose her wings”

  1. CU Skeptic Says:

    Under your premise, shouldn’t we also get upset when any credit union experiences “too much” growth?

    How is one credit union merging with another any different than a single credit union growing by X percent?

  2. Morriss Partee Says:

    Hey CU Skeptic! Glad you are here and holding everyone’s feet to the fire!

    Indeed, you could make that argument. However, I am not making that argument, and here’s why: Every credit union has its own management, board, and staff, that are making decisions on behalf of its members. When you merge, you are eliminating an independent set of people making decisions for the benefit of the membership. When you grow (not through merger), no such local decision making is lost. It’s all about the autonomy.

  3. Ashli Moore Says:

    Unless local decision making is not in the best interest of the member then a merger makes sense…keep the people and their money with the credit union movement, right? For example, a SEG that loses its company sponsor, these people still need credit union treatment even if their sponsor is no longer interested in running a credit union…shouldn’t a merger take precedence there?

    Maybe not be the best example…remember I’m still a newbie…be gentle 🙂

  4. Morriss Partee Says:

    Hey Ashli! Glad you are here and commenting! Props to you for that!

    Indeed, I don’t know anything in detail about this particular credit union or the situation it finds itself in. If it’s having a very tough time being a sustaining business, then there are two courses of action it can take: It can either merge into another organization, and it would certainly be preferable for that to be another credit union rather than a bank, or it could dissolve itself and return the assets to the membership, something that the folks at Gene Blishen’s Mt. Lehman Credit Union have stated that they would rather do. Here’s a link to a great article he wrote about small being beautiful.

    There are many cases of a single-SEG credit union continuing operations even after the original sponsor downsizes or even goes out of business, because yes, the members still need credit union services. DCU is just one example. It was originally chartered to serve the employees of Digital Computer, but that has long ceased being a business entity. DCU has gone to a community charter and has grown to more than $4 billion in assets and 350,000 members. It is not a forgone conclusion that a single sponsor CU needs to merge into another entity, or even to change to a community charter if there are problems at the sponsor company. But those two options are indeed the most commonly pursued.

  5. Ginny Brady Says:

    Here’s another credit union that’s merging with a bank. This time in Massachusettes.

  6. Jeffry Pilcher Says:

    [Morriss’ note: due to technical snafu, I pasted this comment from Jeffry here, hence my icon appearing next to this message from Mr. Pilcher.]

    Making categorical, blanket statements like “mergers are bad for credit
    unions” feels very ideological (vs. strategic) and, dare I say, a little
    reckless. (Oh gawd, here comes the lynch mob…)

    Are there NO exceptions? None? Ever? What if two credit unions in a rural
    town with only 20,000 residents decide to merge? Does that undermine the
    notion of “local purity?”

    Personally, I don’t accept the suggestion that the idea of “credit unions”
    hinges entirely on “locality.” Credit unions were established so that people
    can help each other. Sure, that means people in a certain geographic area…
    in some instances, and you can take that approach to the extreme, as with
    Mt. Lehman’s “hyper-local” model.

    But there are many credit unions that were established to serve a certain
    TYPE of person, regardless of where they live. There are employees’ credit
    unions that span multi-state regions. Are these CUs any less of a CU because
    they don’t have a locally-concentrated membership?

    What about Navy FCU? Or Pentagon FCU? Or Air Force FCU? Or, for that matter,
    countless other CUs that need to be federally chartered in multiple states?
    These CUs have members strewn across the entire planet! The suggestion that
    a credit union MUST have a local focus implies that the very idea of a
    federal charter is “blasphemy.”

    The fundamental premise of credit unions (indeed, branding in general) seems
    to be about people of a common bond, with common needs. That’s what I love
    about TIP charters (Trade, Industry & Profession).

    What about airline credit unions? Should they only serve members that live
    near the primary hub, just to meet an (arbitrary) “local” requirement? Why
    couldn’t two airline CUs merge? More branches in more cities for a
    membership that’s always traveling? How would that be a bad thing?

    I’ll reserve judgment on mergers on a case-by-case basis. In KV’s case,
    something smells very funny, and it certainly pisses CU purists off (and for
    good reasons). But to damn all mergers? No, I can’t do it. Dogmatic beliefs
    often interfere with creativity, innovation, dialogue and forward progress.

  7. David Says:

    I just joined a fledgling credit union, that is negotiating a merger with 3 or 4 neighbouring credit unions.

    If the resulting credit union has well over 1 thousand members, instead of just a few hundred each, this should make it stronger, and allow it to provide one key service that its target market needs: an ATM card.

    However, that will mean it covers a county with nearly 2 hours car journey corner to corner, and worse by bus. It will need some form of democracy that does not disenfranchise those who cannot travel to an AGM or a board meeting.

    I think that mergers bring problems to be solved, but the benefits need to be seriously considered. And boards should welcome amd encourage a discussion about the challenges, rather than presenting a united front.

  8. Morriss Partee Says:

    @Ginny – thanks for alerting us to that cu into bank merger right in our backyard here in Massachusetts. The fascinating thing with that one is that that credit union was profitable last year while the bank was not. So that would be a real shame if that the credit union’s continued good business practices and goodwill of its membership will help subsidize the bank continuing to operate.

  9. Morriss Partee Says:

    @Jeffry – YES, you correct in your assessment of my distaste for credit unions mergers. YES, I am being ideological AND dogmatic in that statement, you betcha! Because I believe (rightly or wrongly) that credit unions are the strategic and practical manifestation of a fundamental idea, namely that people can band together to create their own financial institution under their own control, and to have a result that to the average member is a better financial life than if their only alternative was to patronize shareholder-driven for-profit banks. My choice to continue to devote my efforts to this movement is my attraction to this fundamental idea that is the genesis of credit unions here and abroad, and that my efforts to help this movement can make a difference in regular people’s lives and make more people aware of this beneficial alternative.

    However, I am actually not saying that all mergers are bad. It’s just that MOST mergers are bad. I’ve heard different CU CEOs say that their board wants them to find other CUs to merge with, for reasons that are COMPLETELY unstrategic and for PURELY FINANCIAL GAIN. When a CU merger is for strictly financial gain, I am completely opposed to it. There have been, and will continue to be, mergers which are made for strategic reasons beyond purely financial gain, and I have no problem with those. I think one of the ones that made the most sense recently was the merger of 12 State Farm Insurance CUs around the country. That is a non-geographic based common bond THAT MAKES SENSE. I am all for such strategic mergers that make sense.

    Unfortunately too many CU mergers are for reasons that make no sense whatsoever, that are not to serve a certain type of person as you state. Can you name a single CU merger besides the State Farm one that was done because it had the same type of member? I am not up on CU mergers and honestly don’t know the answer to this one. If there are such out there, I’d love to know about it.

    I take HUGE issue with your statement that implies that I think the Federal charter is blasphemy. That’s the opposite of the truth, I am in HUGE admiration of the Federal charter, and in fact started the wikipedia entry on it. Your logic doesn’t hold up here. The Federal charter doesn’t have anything to do with the issues of mergers, and is not mutually exclusive with local control.

    But you are correct, it’s not about “local” control, though the word local in this case works as a proxy for the concept that it’s under the control of people like me, people who share the same concerns, values, and beliefs as I do. If I am a part of the Navy, I can feel confident that the people running Navy FCU are working in my best interest. But if I am a farmer in Fargo, North Dakota, I would not feel confident that my CU was serving me if it merged with a CU serving government officials in Bismarck ND. I would not feel that they shared my same concerns, beliefs, and values or that they were making decisions in my best interest.

    If KV FCU is having a tough go of things, they should consider dissolution and returning the assets to the membership, or if they’re intent on merging, merge with another credit union, not with a bank.

  10. Morriss Partee Says:

    Hi David, thank you so much for joining the conversation; I am honoured to have your comment here. If I remember correctly, you are from the U.K.? Indeed, credit unions are virtually unheard of there, and most are small by U.S. standards, with a couple hundred members. I think for very small credit unions of less than 1,000 members, mergers are likely the only practical thing to do. The mergers I take issue with are ones where either CU already has many multiple thousands, or even tens of thousands of members, and there is no common bond between the membership of the two CUs.

    In the case of your CU that now covers a large geography, I would look to technology to bridge the gap. Creating an intranet to facilitate communication between far flung branches, and even video conferencing, which can now be done using free web sites such as FlashMeeting (a U.K. company)

  11. Jeffry Pilcher Says:

    Morris, I wasn’t saying anything about your feelings and beliefs about federal charters. Nor was I trying to link federal charters with mergers. You said “credit unions” = “local.” I was pointing out that if your contention is that the idea of “credit unions” hinges on “locality,” then many/most federal charters aren’t going to meet your criteria.

    I know how you really feel (total booster for ALL credit unions), so no need to worry or get defensive. There’s just a hole in the “credit unions” = “local” argument, that’s all. It had nothing at all to do with mergers (outside of your original implication that a merger automatically liquidates a credit union’s locality).

    Also, you did say EVERY merger was bad (excerpts from the O.P. highlighted in all caps): “Should we get fired up EVERY time a CU merges out of existence? EVERY merger is a step away from the goal. EVERY time a credit union is merged out of existence, an angel loses her wings.”

    Maybe your position isn’t as rigid and dogmatic as you presented it in the O.P., but there was a categorical dismissal of EVERY merger, which is difficult for me to accept.

  12. Jeffry Pilcher Says:

    RE: Federal charters. The same rationale that “credit unions” ≠ “local” applies to credit unions who need multi-state charters –for instance, to serve employees in two different facilities.

  13. Morriss Partee Says:

    To add further indignation to this proposed merger, an anonymous commenter on Andy LaFlamme’s CU Loop blog has pointed out that KV FCU is in fine financial shape! This is not a CU on the brink of insolvency! It’s the result of a bank wanting to grab while the grabbing is good!

    @Jeffry Indeed, I went to hyperbole by saying ‘every’ credit union merger is bad. It’s just that most of them are less-than-stellar, and done for reasons that are not in the members’ best interest, and most people don’t care, so I want to pound that drum and wake folks up to what is going on!

  14. christianmullins Says:

    The question of whether or not to merge, whether it’s two banks, two CUs, or one of each, is a complicated one. There is nothing wrong with growth; in fact, it should be encouraged as the notion of declining sits well with no one.

    Regardless of the corporate structure of the financial institution, the fact remains that, when one merges into another, there is one fewer choice available for the community. In some areas, sliding from 40 choices to 39 won’t make that much of a difference, but declining from 6 to 5 could, especially if it was the one institution (bank or CU) keeping the others honest in regards to rates and/or fees.

    There are times when a merger makes sense for all parties, but all too often a credit union merger is a result of ineffective (or, even worse, retiring) executive management. Conversely, it would appear that many bank mergers are driven not so much by circumstance (though these past few months have been the exception) but by cash or stock payouts (cash payouts have also finalized the odd CU merger here and there).

    My argument is simply one small piece of a very large puzzle, and every merger should be examined separately. I recently stumbled across a merger between UW Credit Union and MATC CU in Wisconsin. Knowing a little (ok, a lot) about each CU, this merger made complete sense to me, and it would appear to fall under the category of ‘everyone benefits’.

    KV FCU and Kennebec Savings Bank? It doesn’t appear that everyone would benefit, and since each FI is, at KSB CEO Mark Johnston would say, ‘profitable’, there is no need, rather only desire, for a merger.

    Whether or not KV FCU’s members share the same desire will be determined in the coming months.

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